Help for homebuyers; help for the mortgage market

Announced on 2 September, the Government's year-long suspension of stamp duty on properties costing £175,000 or less could help some homebuyers - and perhaps the mortgage market as a whole. Previously, stamp duty had been charged every time someone bought a house worth more than £125,000.

However, the real problem in the housing market is mortgages, not stamp duty. Owners' worries about falling prices - and buyers' unhappiness about not being able to get on (or move up) the housing ladder - both stem from the difficulty of finding a mortgage (also known as a home loan).

The average house price, according to Nationwide, is currently around £165,000, so a 25% deposit would be over £41,000. Whether or not someone pays stamp duty (a maximum of £1,750) is unlikely to be really significant.

According to the Council of Mortgage Lenders, the government should 'focus on the mortgage funding markets as much as on the consumer-facing initiatives announced today'. Director general of the Council of Mortgage Lenders Michael Coogan pointed out that until more funding became available, we would be "some way from restoring long-term stability to the housing and mortgage markets".

In some cases, though, the stamp duty suspension could make a difference. That 'saving' could help someone lay down a deposit that lets them get a mortgage with a lower interest rate. It could even make the difference between being able to get a mortgage and being refused by every mortgage provider they approach.

The stamp duty changes were just part of a 'major cross-government package of new measures to meet current challenges in the housing market'. Other measures include a £300m shared equity scheme designed to help first-time buyers get a mortgage, and a £200m mortgage rescue scheme to help up to 6,000 vulnerable homeowners avoid repossession.

But with house prices falling, some people doubt whether the government should even try to help people onto the housing ladder. Unless a homebuyer is confident they'll stay in that property until house prices rise again, buying a house could well be a bad idea at the moment - assuming they can get a mortgage in the first place.

According to Nationwide's House Price Index, someone who'd bought an 'average' house 12 months ago could have lost £20,000 by now. Unless their deposit was large enough, there's every chance they'll be 'trapped' by negative equity: with a mortgage debt that's higher than the value of the house, they could find it impossible to move.

On the other hand, renting isn't free. Someone who get a mortgage and buys a house can reasonably expect to recover any money they 'lose' when the housing market recovers - while renters know that each month's rent money is gone for good.