THE UK is finally in recession, according to the Organisation for Economic Co-operation and Development. So how can consumers protect themselves from the storm of rising job losses, a property crash and financial hardship which look certain to follow?
Views remain divided over whether Scotland will follow the rest of the UK into recession, but a serious slowdown in economic activity is expected, which means families north of the border are unlikely to be spared falling house prices, rising unemplo
yment and a stretch to meet bills.
Indeed, property prices are already down over the year. By June they had fallen 2% compared with the previous year, according to Bank of Scotland. But the capital has been worse hit. Edinburgh Solicitors Property Centre put annual price falls in the city in the year to August at 6.5%, with the average home now costing £201,517.
Just 400 properties changed hand last month, compared with 985 during August 2007, after sales collapsed for the third month running.
Against this background, the package of measures designed to help the housing market, launched by Westminster on Tuesday, was widely derided as inadequate. Yet on closer examination they could, if combined with falling interest rates, stop house prices falling and bring relief to the property market some time next year.
Extra support if disaster strikes The most significant and helpful change announced by the Government was the boost in help available from the state to homebuyers who are made redundant.
Currently, if you lose your job you get no help towards mortgage repayments for 39 weeks, by which time most families are in the last stages of repossession, having been hounded by debt collectors for the best part of a year.
But from April their mortgage interest will be paid by the state from week 13, at which point their finances will become manageable again and their problems solvable, pending finding a job.
Furthermore, the ceiling for support is rising from £100,000 to £175,000, allowing larger loans to qualify.
This extra support is limited to two years, although help for the long-term unemployed and those receiving pension credit is not subject to the same time restrictions.
Not only should this drastically cut repossessions, the move may also enable families on tight budgets to review their insurance arrangements. Some policies aimed at protecting homebuyers against redundancy are expensive. In light of these changes, policyholders may opt to cancel their cover and pocket the monthly premiums.
Stamp duty holiday The Government is suspending stamp duty on house purchases below £175,000 until next September. Though this is unlikely to have much impact in London, where only one in 10 properties has a price tag below this threshold, it may make moving easier in other areas.
To be fair to the Government, this means that the typical UK home will be excluded from stamp duty during the moratorium, given that the average UK house now costs £174,178, the Bank of Scotland announced last week. So it is more than the meaningless gesture some have dismissed it as.
Furthermore, it is even more helpful in some areas. In Scotland, for example, 65% of homes will no longer be liable for the tax, compared with around a third before the ceiling was lifted.
In the north of England, parts of the Midlands, and Wales between 70% and 75% of property costs less than £175,000.
Jason Scott, of solicitors and estate agents Warners, says: "It is much better to look at the impact region by region, as the position can be heavily skewed by looking at the national picture or listening to comments coming out of London."
This does not mean Scottish first-time buyers should rush out and make offers immediately, as further price falls cannot be discounted.
And as Craig Laing of financial services firm Henderson Loggie says: "First-time buyers currently need to find around £15,000 to cover their deposit and other costs, so saving £1,750 is a drop in the ocean."
Nevertheless, those who want to buy should keep a close eye on how the market is moving. If prices do stabilise next year, there may well be buying opportunities.
Interest-free loans These are not yet available in Scotland, although the Scottish Government might do well to examine them. Borrowers in England are to have access to an interest-free loan for the first five years after purchase, allowing them to enjoy fully any recovery in property prices when it comes, although they will also bear any burden of falls in values.
The Scottish Government has dismissed these arrangements as inferior to its existing shared equity scheme, whereby first-time buyers can buy part of a home and live in it, acquiring further equity over time.
However, this is misguided. This is not a shared equity arrangement, and many Scottish buyers would jump at the chance of an interest-free loan of nearly a third of the amount they are borrowing.
The new scheme, though, is not without risks. Half the interest-free loan is supplied by a developer (with the Government putting up the other half), so borrowers would have to take care they were not paying for the loan concession via a higher purchase price.
Furthermore, the arrangement ceases to be 'free' after five years when a 3% charge is levied. That said, this will still be cheaper than prevailing mortgage rates, so borrowers might be advised to save elsewhere and then pay off the loan in one fell swoop.
Mortgage-to-rent schemes
Westminster announced further cash to help those struggling with their mortgage payments by switching to a mortgage-to-rent scheme. The Scottish Government had already announced similar measures.
However, there are notable differences between the two schemes, which both allow borrowers to escape debt by selling at least part of their home to a housing association.
Notably, English officials have indicated that to qualify for additional help borrowers must already own outright at least 20% of their property. However, the Government has not yet confirmed that this will be the case.
As one commentator put it: "This means those worst hit by falling prices and who are either caught in negative equity or verging on it will not qualify."
A Scottish Government spokesman said no such restriction applied to its mortgage-to-rent arrangements.
However, in England those in trouble can sell a share of the house to a housing association, reducing their monthly bills without selling the entire property, thereby maintaining ownership. The Scottish scheme requires the householder to give up title completely, sell outright and become tenants.
A review into making the scheme more flexible in Scotland is to report in November.
