Newsletter | April 2010 | 1% on Stamp Duty

Stamp Duty error!

It would be a huge mistake to fall for the changes announced in last months Budget on Stamp Duty for first time buyers. The Chancellor removed the need for first time buyers to pay Stamp Duty on the homes they buy, up to a value of £250,000. Furthermore, in a year’s time, Stamp Duty on the purchase of properties over £1m will rise by 1% to 5% of the purchase price. This is the so-called ‘mansion tax’ proposed last September by the Liberal Democrats.

There are three reasons why a budget give-away like this is a mistake:-

Firstly, the number of first time buyers (according to a written answer to a question from the Opposition last November quoting the Council of Mortgage Lenders) is at an historic low having fallen by 67% in the past decade. Nearly 600,000 first time buyers bought in 1999, which fell to below 400,000 at the peak of the market in 2007 and then to less than 194,000 in 2008. First time buyers, it would seem, are an endangered species or what Labour would presumably describe as 'an oppressed minority’!

These are the number of first time buyers each year in the past 10 years according to CML:

1996 465,300
1997 501,500
1998 525,200
1999 592,400
2000 500,200
2001 568,200
2002 531,800
2003 369,600
2004 358,100
2005 372,200
2006 400,500
2007 357,100
2008 193,600

Most of these people would benefit from removing the 1% Stamp Duty charge as they will be spending less that £250k and we all like to pay less tax but I expect that last year there were less than 150,000 first time buyers and this year there could be even fewer. Artificially propping up the housing market just distorts the market just as it did when MiRAS (Mortgage Interest relief at Source) was withdrawn in April 2000. We saw a similar spike in transactions last December when the recent Stamp Duty holiday ended. 

With interest rates at record lows, it is surely irresponsible to encourage first time buyers to invest in property when interest rates can only rise from here. If a 1% saving is enough to convince you to buy a property today then you need to do your own budget!

Finally, whilst many people including the NFoPP and RICS have encouraged the Government to look again at changing the 'slab' like system of the current Stamp Duty system - perhaps to a progressive tax - the housing market has bigger challenges. Despite few mortgage products (see The Month in Numbers) houses still remain unaffordable to most of those who would like to be described as first time buyers. The average age of someone buying their first property is still mid-thirties. 

Sales of homes over £1m form the bedrock of our business and we expect there to be an increase in sales between now and next April. However, once the new tax comes in, assuming that a new administration doesn’t reverse the decision, then we can expect supply to contract, which may perversely increase prices. 

It is perhaps a sign of a government that has run out of ideas. We are currently dealing with the tenth Housing Minister from this Government. The only worry is that neither of the opposition parties seems to have any better answers.