Brown to Pledge 1 Billion Pounds to Spur U.K. Housing Market

By Gonzalo Vina

Sept. 2 (Bloomberg) -- Prime Minister Gordon Brown will today propose spending 1 billion pounds ($1.8 billion) sooner than planned to help reverse Britain's worst housing slump in at least 18 years, according to people with knowledge of the plan.

Brown will spend more quickly the 6.5 billion pounds earmarked for social-housing programs over the next three years so that more of it is used in the next 12 months, the people said. The money will be used to help people buy new homes and support those struggling to pay their mortgages.

The measures, which Brown and Communities Secretary Hazel Blears will announce later today, are among measures aimed at preventing the economy from tipping into a recession and bolstering the popularity of the ruling Labour Party, which has lagged the Conservative Party in polls since October.

The program would offer help to thousands of first-time buyers earning less than 60,000 pounds a year for up to a third of the value of a newly built property, the people said. The interest-free loan, funded by the government and the property developer, will be available for up to five years.

The government will also give money to several thousand households at risk of falling behind with mortgage payments in return for an equity stake in the properties. Housing associations would be given the money to buy and then rent back properties to those struggling to make payments, or buy or rent a share of the property to help reduce payments.

Economic Package

The plans are part of a broader economic package that Brown will unveil by Sept. 8, when the Cabinet meets for the first time following the summer parliamentary recess.

The government is also considering a one-year deferral of or an exemption for some buyers from a property tax known as stamp duty. Chancellor of the Exchequer Alistair Darling last month left open the possibility of a temporary suspension of the tax as a way of reviving the property market.

Nationwide Building Society said last week that house prices declined 10.5 percent in August from a year ago, the biggest drop since the final quarter of 1990.

The levy equals 1 percent of the purchase price for houses costing between 125,000 pounds and 250,000 pounds. The fee rises to 3 percent for homes up to 500,000 pounds and to 4 percent above that level. The average U.K. house price was 169,316 pounds in July, making the stamp duty charge about 1,700 pounds.

Heading Toward Recession

Britain is heading for its first recession since the early 1990s after the economy stagnated in the second quarter. A surge in food and fuel costs ate into the wages of consumers as a worldwide credit crunch dried up mortgage finance.

The credit freeze has prompted lenders to raise interest rates and curtail lending, and there is little sign that the squeeze is easing. Lending between banks fell 68 percent in July from a year earlier after financial institutions hoarded cash, according to Bank of England data published yesterday.

The economic slump has reduced support for the ruling Labour Party to the lowest since it took office in 1997. The opposition Conservative Party, led by David Cameron, widened its lead to 22 percentage points in a YouGov Plc poll finished on Aug. 21, from 8 points at the beginning of the year.

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net