British Prime Minister Gordon Brown cut an unpopular tax on home purchases on Tuesday as part of a package to boost the country's slumping housing market and lift his flagging political fortunes.
Brown's government said properties worth less than 175,000 pounds ($316,000) would be exempt from the tax, known as stamp duty, for one year, up from a 125,000 pound threshold now. That will cost the budget an extra 600 million pounds over two years.
The step was accompanied by a one billion pound package to aid first-time home buyers and people struggling to keep up with mortgage payments as well as help property developers in shifting new homes.
Shares in homebuilders and other construction related businesses jumped on the news but analysts were sceptical over whether the move could pull the housing market out of its worst slump in more than a decade.
"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 Brown's efforts to relaunch his premiership after a bruising few months and he is expected to unveil plans later this week or next to help households cope with the rising cost of fuel bills.
With consumer confidence crumbling in the face of the credit crunch and rocketing energy bills, Brown's ruling Labour Party is some 20 points behind the opposition Conservatives.
On that showing, it would easily lose the next general election, which 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 Treasury said that half of home transactions would now be exempt from duty, while the Council of Mortgage Lenders estimated that if the new threshold had been in place throughout 2007, some 215,000 borrowers who paid it would have been exempt.
Some analysts cautioned that a previous stamp duty holiday introduced by the Conservatives in the early 1990s housing market slump had little discernable impact.
"If it's marginal finance and marginal savings people are after I don't think this changes much at all. People would be better waiting for house prices to fall," said Ed Stansfield, property economist at Capital Economics.
HELP FOR THE POOREST
Shares in housebuilders such as Taylor Wimpey <TW.L> and in home improvement group Kingfisher <KGF.L> surged on the package, which included a plan to offer five-year interest-free loans to some first-time buyers moving into newly-built properties.
"The market's thinking that if they can turn work-in-progress into cash more quickly, it will help them keep within their banking covenants," Kaupthing Singer & Friedlander analyst Kevin Cammack said.
The government said the housing package would also help vulnerable families struggling with mortgage payments avoid losing their homes and bring forward funding for new social housing from existing budgets.
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 television.
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.
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 2008.
That was the first quarter the economy has not grown since a recession in the early 1990s, meaning Brown can no longer boast of uninterrupted growth since Labour took office in 1997.
The Conservatives said Brown's housing package would not help the vast majority of families facing a rising cost of living and falling house prices.
"I suspect what we will see in the coming weeks is a desperate and short-term survival plan for the prime minister rather than the long-term economic plan the country needs," the party's economic spokesman George Osborne said in a statement.
