As part of the package of measures designed to revive the flagging housing market, Stamp Duty is to be axed on properties costing less than £175,000.  The level at which the 1 percent purchase tax has to be paid is to be increased form £125,000, from Wednesday morning. The move applies to residential property, would save someone buying a £174,000 property £1,740.

Other measures in the package include “free” loans of up to 30 percent for first time buyers in England. If a household’s income is les than £60,000 it will be offered loans free of charge for five years on new, co-funded, properties.

Although house prices are reportedly falling at their fastest rate since the early 1990s, rising fuel costs and the global credit crunch are dampening consumer confidence.

The Communities secretary Hazel Blears is set to announce a series of proposals on Tuesday aimed at rejuvenating the housing market. She is one of several cabinet ministers putting forward plans seen as the beginning of Mr Browns “recovery plan”.

The loans system is called HomeBuy Direct, and is to be run together with “large-scale” property firms. Once the five-year “free” period is over, homebuyers will be asked to pay a fee, although what exactly the fee will be remains a mystery.

In a statement, the Department for Communities and Local Government (DCLG) said: “Not only will this help first-time buyers, but it will also support the industry by identifying buyers for their new homes.

“This will help the house building industry weather difficult conditions, so that, when the market recovers, they are ready to expand and get back on with building the new homes the country needs for the long term.”

The government has said that for existing homeowners who can no longer afford mortgage payments, councils and social housing landlords can pay off the debt and instead charge tenants rent “at a level they can afford”.

The DCLG also promises to “bring forward funding for social housing from existing budgets, delivering more social homes sooner”.

On Monday, the prime minister Gordon Brown said the UK faced “unique circumstances”, including oil prices trebling and the global credit crunch.

But Mr Brown said the government was “resilient in… dealing with these problems”.

He earlier denied a rift with Chancellor Alistair Darling, who had said the country was facing its worst economic crisis in 60 years.

For the Conservatives, shadow chancellor George Osborne said: “We will look at the details of these measures and we will support those that will work.

“But let’s be clear, they are not going to help the vast majority of families facing a rising cost of living and falling house prices.

“Nor do they amount to the first instalment of the economic recovery plan we were promised.

“I suspect that what we will see in the coming weeks is a desperate and short-term survival plan for the prime minister rather that the long-term economic plan the country needs.”

Liberal Democrat leader Nick Clegg said: “This looks like a hotchpotch of measures thrown together to save Gordon Brown’s political skin.

“The social housing stock could be increased far more easily by allowing local authorities to buy up unsold properties and use them for new social housing.

“Yet again the government is desperately scrabbling around for a way to fix problems of its own making.”

Gordon Brown is to unveil a multi-million pound package of measures that are aimed at reviving the housing market today.

More funds are to be made available to local authorities to help first-time buyers get a foot on the property ladder. Councils will buy repossessed and unsold properties, and offer financial assistance to borrowers in return for a stake in their homes or outright ownership.

The Treasury is also considering a postponement on stamp duty – the tax charged on the purchase of a property - for lower value homes, as well as a tax-free savings account for first-time buyers.

The prime minister is trying to recover political ground after months of declining support in opinion polls and chancellor Alistair Darling’s warning last weekend that economic conditions were “arguably the worst they’ve been in 60 years” and voters were “pissed off” with Labour.

On Sunday, the justice secretary, Jack Straw, attempted top play down Mr Darling’s comments, defending both Brown and Darling’s handling of the economy. “We’ve had a very good period of economic management and economic success which has, for sure, provided us with a really serious platform to weather these storms,” Mr Straw told the BBC.

The package will be followed later this week, or early next with measures aimed at helping lower-income households facing hardships as a result of rising fuel bills. Further measures aimed at reviving the wholesale mortgage market are being delayed by the Treasury until this autumn’s pre-budget report, pending agreement between ministers and the Bank of England.

According to the Treasury, the package could amount to around £1bn, bringing forward allocations already pledged and making available additional finance in new funds.

As Mr Darlings comments reverberate around Westminster, the Conservative government claimed the government was divided, and many within Labour believe Darlings head will roll when Gordon brown reshuffles his cabinet after his party’s conference at the end of the month.

“The problem with Alistair [Darling] is that he is disastrous in presentational terms and gives the impression of not being in control of events or responding to them quickly enough,” one Labour backbencher said.

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According to a survey, house prices in England and Wales have continued their decline last month and are now lower than they were a year ago. Prices fell 0.9 percent between May and June, after the steep 2.5 percent drop of the previous month, Nationwide said today. Its index shows prices are now 6.3 percent lower than a year ago, after eight straight months of decline.

The survey’s release follows data showing mortgage approval numbers – regarded as one of the best guides to the direction of prices – dropped in May to little more than a third of last year’s level.

Fionnuala Earley, Nationwide’s chief economist said, “With house purchase transactions so far below their long term trend it seems unlikely that there will be any rapid turnaround in housing market fortunes in the coming months.”

She noted that volatile markets had led to “more frequent mortgage re-pricing”, exacerbating the previous tightening of credit conditions.

Ms Early said – citing a survey by the Council of Mortgage Lenders – that the fall in transaction volumes has been sharpest among existing homeowners moving house. The proportion of first time buyers ha not changed a great deal, and buy-to-let investors account for a bigger share than average of new mortgage approvals.

Nationwide also published quarterly data showing that over the last three month, prices were lower than a year ago in all regions of England and Wales.

With the south no longer clearly outperforming, the gap between the rate of price change in the north and south of England has narrowed. Although London remains the most expensive area, the capital suffered the first year on year a price fall since 1995.

The only part of the UK where prices remain higher than a year ago – although they have fallen quarter on quarter – is Scotland. Nationwide attributes this to pockets of oil wealth around Aberdeen, and the fact that housing had remained more affordable than in most of the country.

Nationwide say the average UK house price was £172,415 in May, compared with £184,000 in June 2007.

According to research by Moody’s, the credit ratings agency, the UK’s banks and building societies could absorb a 20 percent fall in house prices in a year without further denting their capital reserves.

The study, set to be published on Friday, comes as shares in Britain’s largest lenders continue to slide, raising fresh concerns that the investment banks that have underwritten the rights issues for Royal Bank of Scotland and Bradford and Bingley would be left holding a substantial proportion of the new shares.

Now at their lowest level for a decade, RBS’ shares have slipped 2.6 percent to 231.75p. Meanwhile, B&B’s shares dropped almost 7 percent to close at 90.5p, which is just 8.5p above the 82p underwriting price for its £300m rights issue.

The weak share prices reflect growing concerns about the impact of the slowing UK economy and falling house prices on banks’ profits. Investors are starting to believe we could see a repeat of the housing slump in the early 1990s.

The Moody’s research suggests, however, that even if house prices were to fall by a fifth, most banks will have sufficient capitol reserves. A 50 percent fall in house prices however would leave many banks needing fresh capital.

Elisabeth Rudman, a Moody’s senior credit officer said, “We found from our stress tests that the mortgage lenders do have a considerable ability to absorb a substantial downturn in that market.”

As reported late last week, RBS, HBOS and B&B have launched rights issues to rebuild their balance sheets, although these capital raisings have mainly been designed to boost reserves after the banks suffered losses on investments linked to the US mortgage market.

Moody’s said it couldn’t rule out further writedowns at the UK banks until house prices had stabilised.

Falling share prices of RBS and B&B have confounded bankers, who priced the rights issues at a heavy discount in order to increase their chances of success.

The sell-off also hit banks that have resisted the pressure to raise capital. Barclays shares, on Thursday, fell 9.75p to close at a five-year low of 377.5p.

Banks in the UK recoiled from commercial property lending, leaving investors in the sector facing record margins, rocketing arrangement fees and demands for greater equity.

On Friday a survey published by De Montfort University, recorded the highest ever interest rate margins for senior debt in every sector as well as the sharpest ever annual increase.

Average loan-to-value ratios for almost all sectors were the lowest recorded, and all organisations increased arrangement fees substantially, reaching their highest ever levels by the end of 2007. Since then, most investors report that conditions have not improved for borrowers.

According to the survey, bank lending to the property sector soared to record levels last year, before the market tightened as the credit crisis ended years of easy finance. Debt rose to a record £247bn in 2007, from £215bn in 2006, with around £200bn standing on the balance sheets of the lending banks.

The figure jumped 16 percent last year, partly owing to an estimated £11bn of debt that was intended to be scrutinised but that could not be distributed following the freeze on this market last summer.

RBS and HBOS are among the largest lenders to the marker, although the sector has been filled by banks and building societies of all types in recent years. HBOS, according to its 2007 accounts, amounted for 37 percent of total corporate lending to construction and property clients - around £40.4bn.

According to the Bank of England, Commercial property lending accounts for 38 percent of major UK banks’ lending to private non-financial companies, compared with 19 percent in 1998.

The fall in capital value of more than 20 per cent recorded in parts of the market over the past 12 months has got some analysts worried. There are fears that this is putting pressure on loans, potentially leading to defaults if the market decline continues.

The Bank of England, one of the sponsors of the survey, was relatively sanguine in its most recent financial stability report, saying that although property values may have increased the risk of commercial property loans held on balance sheets, there was no increase in defaults in spite of evidence of breaches of covenants.

The UK’s largest building society, Nationwide, on Thursday said that it expected UK housing prices to fall further this year, though the percentage decline would “remain within single digits”.

Nationwide’s chief executive, Graham Beale, made the comments as he announced strong financial results for the mutually owned company.

In response to the global credit crunch, Nationwide cut back its mortgage lending and expanded its share of the consumer savings market. The company showed underlying pre-tax profits for the year to April 4 had risen by 17 percent to £781 million.

Net residential lending fell by 40 per cent to £6.7bn, and lending to the commercial property sector was down 29 per cent to £2.4bn. The company said its total net lending of £8.9bn was fully funded by net retail savings receipts of £9.1bn. This compared with 2007 lending of £14.6bn and savings receipts of £3.3bn.

“We experienced strong inflows of savings as customers sought a safe haven for their money following the uncertainty of the credit crunch,” said Mr Beale.

The building society’s cautious approach was illustrated by the fact it had a 19 percent share of the UK savings market, compared to just 7 percent of the residential lending market. In the previous year the company had 11 percent of the mortgage market.

Mr Beale said he would be comfortable if Nationwide retained a 7 percent share of UK mortgages this year.

In the first annual decline for 12 years, Nationwide announced, last month, a 1.1 percent fall in UK house prices. “We think that trend will continue throughout the year, but remaining within single digits,” Mr Beale said

Although builders have reported a further deterioration in th UK housing market, Mr Beale is optimistic, “If anything I think market conditions have improved marginally over the past month,” he said. “We may have seen the first green shoots of recovery.”

Finance Director, Mark Rennison, when asked about the commercial property market, said the commercial sector seems to have been more affected by the credit crunch that residential property.

“We have seen some significant falls in capital values,” Mr Rennison said, “and clearly there is the potential for further falls in value and further pain in the commercial sector.”

It seems that the £50 billion bailout of the UK money markets will not be enough on its own to see the economy through the worst. In an unprecedented attack on corporate governance in the UK, the Governor of the Bank of England Mervyn King has warned the banks that they will need to play their part to ensure that the UK economy does not take yet another turn for the worse. So what is happening?

While there was a flurry of relief that the government had pulled off something of a coup with the injection of £50 billion into the markets, this case is slowly unraveling. We are still seeing mortgage lending slumping month on month, house prices have fallen over the last 12 months for the first time for many years and many mortgage lenders are placing ceilings on the maximum mortgages which they will authorise. The situation is not getting any better in the short term!

It would be unfair to suggest that the government thought the affect would be immediate but the much expected flurry of relief has yet to materialise in the market place. Banks are still running to shareholders for billions of pounds to shore up their balance sheets and many of the smaller mortgage lenders are going to the wall. As many people suggested at the time of the £50 billion cash injection, this is one storm which we will have to ride out and one which will get much worse before it gets better. So what about that tax payers cash?

The £50 billion of tax payers money which was introduced to the markets is still very safe with the banks being asked to provide collateral much higher than the amount of money they are looking to raise. There is also the further safe guard that the banks have committed to covering any potential loses on the government’s asset swap. Even if one of the smaller player or a larger player was to go under, the industry itself would be forced to foot the bill just to ensure public confidence remained high.

There has been little news of late with regards to unemployment figures but these are set to rocket over the coming months. There is often a time lag between the economy falling and jobs being lost, although it will not be long before the bad news starts to flow. We are hearing news over the last few days that some of the larger budget clothing Groups in the UK are under severe financial strain with MK One recently put up for sale.

This is very much just the tip of the iceberg and there will be substantially more bad news before we start to improve. The Bank of England may well be forced to reconsider their current stance on interest rates and inflation and look to cut rates in line with their US counterparts. When you know that £50 billion is not going to bail out your economy you know that you are very much in trouble!

The news of an impending summit between the government and the Council of UK Mortgage Lenders is rumoured to be taking place this week, but what will they decide? Will it make a difference to the person in the street?

At the same time as Chancellor Alistair Darling was dishing out words of wisdom to the mortgage industry which he has very much helped to destroy of late, it was announced that State owned Northern Rock were not even following the governments lead. Northern Rock have yet to decide whether their variable mortgage interest rate will be changed after last weeks base rate reduction, in direct to contrast to Darling’s call. So is this a case of do as I say, not as I do?

While the government will argue that this truly reflects the independent nature of the Northern Rock, which is supposed to be run at arms length from the authorities, how can they then criticise the rest of the industry?

The mortgage industry in the UK is literally on its knees with increased funding costs, a falling housing market and a government which seem keen to squeeze them as hard as they can in order to curry favour with the public. It is difficult to argue with some of the points which the government have made, but does this latest outburst not deflect the attention from the Treasury at a time when public spending is under pressure, government debt is rising and the economy is stalling?

It will be interesting to see if the minutes of the summit are released, showing the arguments from both sides, because from an outsider’s point of view it would be interesting to see what was said and any changes agreed for the future. However, is it not ironic that all talk of a one off banking sector tax charge (suggested when they were all doing well) has now been replaced by an atmosphere of “let us work together”.

The bottom line is that while the mortgage companies of the UK could no doubt reduce their rates a little further, there is still massive pressure on funding. Many have been critical of the Bank of England who have injected just a fraction of the liquidity which their US and European counterparts have, despite the obvious deterioration in the financial sector. But is this the fault of the Bank of England, the consumer or even the government?

Let is not forget that this is a government who have bragged about the increasingly bright economic future of the UK for some time, the fact that the boom and bust scenario had gone for good and kept wage inflation in the public sector to a minimal. Now the economy is failing quickly, the bust scenario is returning and we are seeing more and more strike action in the public sector, and all in just a couple of years.

Will Gordon Brown get the chance to breathe new life into the economy, will the mortgage lenders play ball or has the Prime Minister lost his iron tight grip on the UK economy?

While we continue to see a stream of mortgage offers withdrawn from the market, with HSBC the latest to pull some of their mortgage deals, there are real concerns that the UK property sector could very well go into meltdown over the next 12 months. As more and more mortgage lenders rush for the exit doors we are seeing a number of things happening in the market place such as :-

Increased Rates

While base rates in the UK continue to come under downwards pressure we are seeing mortgage rates actually rise, something which many of the UK population seem to be missing. The banks claim that due to a lack of available credit they are seeing increased funding expenses and increased risk, hence the rise in rates. It should also be noted that this widening of the gap between the cost of mortgage finance and mortgage rates being charged to the public has given the banks more “profit margin” on their mortgage agreements.

Lack Of Competition In The Market

As we see mortgage providers looking to pull more short term deals, competition in the sector is decreasing, something which is allowing many mortgage providers to increase their rates. One factor which has gone largely unnoticed is the Northern Rock affair and the fact that they are actively encouraging mortgage customers to remortgage with other financial institutions, thereby reducing their own mortgage book and releasing funds to repay some of the debt due to the government.

Demand Falling

While the markets have been expecting some kind of fall back in the housing market, after a relentless rise over the last few years, few would have forecast exactly what would cause this retreat. Even though demand has not yet fallen substantially we are starting to see the wave of sellers building, with more and more people desperate to reduce their exposure and scale down their property assets. Historically property owners have reacted very much with the herd mentality and this time is likely to be no different. There will come a breaking point when the sellers grow in number and the buyers retreat knowing that a property they like today will likely be cheaper to tomorrow, so why rush?

Employment

Even though there has been no real mention about the employment situation of late, there is no doubt that as the economy slows we will see more and more redundancies. Those who lose their jobs will then be under more and more pressure to cover their mortgages, with repossessions likely to rise substantially over the next year. This rise in repossessions will also put further pressure on the housing market, with prices falling further and further. Indeed there has been a report today which suggests that over 3 million UK home owners will enter a negative equity situation over the next 12 months.

The mortgage market is literally dying on its feet and even those who are brave enough to buy will struggle to find affordable mortgages at the moment. Over 40% of mortgage providers have recently indicated that they will be pulling some of their mortgage offers from the market over the next few weeks and months, meaning the cost of borrowing will go higher and higher. Unfortunately, we are nowhere near the end game as far as the credit crunch is concerned.