Brown unveils housing market support plan

Prime Minister Gordon Brown cut an unpopular tax on home purchases yesterday as part of a package to boost a slumping housing market and lift his flagging political fortunes.

The government said properties worth less than £175,000 would be exempt from the tax, known as stamp duty, for one year, up from a current £125,000 threshold.

The step was accompanied by a £1 billion package to help first-time home buyers and people struggling to keep up with mortgage payments.

"The stamp duty holiday may provide the domestic housing market with a marginal stimulus but we doubt it will gave a major effect in getting the housing market moving again," said Philip Shaw, chief economist at Investec.

The package is a key part of Mr Brown's efforts to re-launch his premiership after a bruising few months.

The treasury said the rise in the threshold would cost it an additional £600 million and that half of home transactions would now be exempt from duty.

With consumer confidence crumbling in the face of the credit crunch and rocketing energy bills, Mr Brown's Labour Party is some 20 points behind the Conservatives.

On that showing, it would easily lose the next general election, which Mr Brown must call by the middle of 2010.

House prices in Britain are sliding and home repossession orders in England and Wales have risen to their highest level since the housing market crash of the early 1990s.

The government said the housing package would help vulnerable families struggling with mortgage payments avoid losing their homes and bring forward funding for new social housing from existing budgets.

The government and property developers also plan to offer five-year interest-free loans for some first-time buyers - both to help people move into affordable homes and support the house building industry.

Communities Secretary Hazel Blears said the package was aimed at "people who just need that little bit of extra help to keep them afloat.

"I think it's the responsibility of government... to do what we can to help the decent people who want to stay in their homes," she told GMTV.

She said the package would help about 10,000 people to buy a first home who would otherwise not have been able to do so.

Mr Brown's political fightback comes after a summer which kicked off with speculation he could soon be ousted as Labour leader and ended with data showing the British economy failed to expand in the second quarter of this year.

That was the first quarter the economy has not grown since a recession in the early 1990s, meaning Mr Brown can no longer boast of uninterrupted growth since Labour took office in 1997.

What the package includes

The Department for Communities and Local Government said the package would include:

• A new mortgage rescue scheme to help 9,000 vulnerable families struggling with payments avoid losing their homes. Eligible home owners will have three options under the scheme: A registered social landlord clears all secured debt and occupants will then pay a rent they can afford; a registered social landlord buys a share in the home and converts the property to a shared ownership lease; and a registered social landlord provides an equity loan allowing mortgage payments to be reduced.

A government source said the scheme would cost about £300 million.

• A new shared equity scheme to help up to 10,000 first-time buyers earning less than £60,000 buy new homes over the next two years. Buyers will be offered an equity loan of up to 30 per cent of the house value, interest-free for five years, co-funded by the government and the housing developer.

This scheme would also cost about £300 million.

• New social housing. The government will bring forward funding from existing budgets for affordable housing schemes which could deliver 5,500 more homes over the next 18 months.

This measure would be worth £400 million.