Posts tagged: stamp duty
The stamp duty holiday finally came to an end on the 24th March 2012 and buyers will now have to pay tax at 1% on properties priced between £125,000 and £250,000. The window, which had had been credited with much of the positive aspects in recent property figures is believed to have saved purchasers some £300m and economists are awaiting the impact of its closure with some trepidation.
While some property experts believed that purchases had slowed down prior to the closing of the window, figures revealed today by the Council of Mortgage Lenders (CML) prove that this was far from being the case.
The CML revealed that the number of first time buyers had increased by a significant 23% in January compared with the same month in 2011 and that resulted in £1.6 billion being approved for 13,200 new loans.
In addition, the UK’s biggest HomeBuy agents revealed that a record number of purchases went through on Friday the 23rd of March, the final day of the stamp duty window, with 129 transactions being recorded.
All of these figures will undoubtedly lead to a spike in property statistics for the first quarter of the year but does it mean that we are heading for a period of gloom as some economists are predicting?
Chris Smith, group direct mortgage manager of the Yorkshire Building Society revealed that his organisation increased its lending to first time buyers in 2011 and he believes that there are still plenty of market options open to them.
“FTBs are important to us – the proportion of our loans to FTBs is seven per cent higher than the market average,” Mr Smith said.
As for the Government, the First Buy Guarantee scheme has been introduced in the hope that it will be more of an incentive for first time buyers than the stamp duty holiday. The scheme is open to FTB’s with a household income of less than £60,000 who can raise a 5% deposit but many industry experts are critical. The initiative was been described in some quarters as ‘window dressing’ amidst allegations that it has an ulterior motive of helping the ailing construction industry.
“This is a very appealing prospect, but Osborne’s scheme won’t go beyond scratching the surface of the problem faced by the vast majority of first-time buyers, as it is exclusively for new-build properties and only around 11,000 buyers will benefit – a fraction of the overall number of potential first-timers,” said Nicholas Leeming of Zoopla.co.uk.
“While the availability of credit is slowly easing, it’s not easing fast enough to help those borrowers who don’t qualify. A step in the right direction these measures may be, but they’re merely window dressing the wider problem.”
One window has closed but has another opened? The remaining nine months of the year will only begin to tell what impact the stamp duty reintroduction and the First Buy Guarantee will have.
The Chancellor George Osborne has confirmed plans for a 7% Stamp Duty on properties purchased for over £2m while at the same time, he announced that the coalition government was planning a crackdown on methods employed to avoid Stamp Duty payments.
At first glance, it would appear that the higher level of duty applies to such a small proportion of property buyers that it isn’t anything to be concerned about but the clear aim behind the Chancellor’s statement is to have the brunt of Stamp Duty carried by those who can afford to buy homes at this level.
“It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more,” Mr Osborne said.
He went on to confirm the plans will be put in place to stop the rise in practises used to avoid higher rates of duty. A popular method was to negotiate a lower sale figure before pushing up the price via the purchase of ‘chattels.’ Additionally, some properties over the £2m mark were being purchased via a limited liability company before selling on to an individual. The Chancellor announced that any properties bought through a company would now be subject to a 15% Stamp Duty charge.
While it may be fair to say that the number of buyers able to afford such properties represents a small percentage of the UK public, the figures involved in such sales are obviously significant and aid the property market as a whole. What effect therefore will this higher rate of duty have over time?
Figures released last week by the Land Registry are suggesting that sales of £2m plus properties are already tumbling. The figures confirm that in December 2011, 103 such properties were sold across the UK and that represented a fall of 18% from the same month in 2010.
These statistics were of course, produced for a period prior to the increase in Stamp Duty so could we expect falls of even greater percentages?
Property experts have been slow to comment on the Land Registry findings but there is concern that another element of the Budget will have a severe effect on sales to Overseas Property Investors. From April 2013, those investors will have to pay Capital Gains Tax.
“This can only make the UK less attractive to overseas investors,” said Toby Ryland of accountants Blick Rotherberg.
These are tough measures indeed but how much effect will they have on the overall property market?
The Chancellor has been accused of failing to recognise the severity of the first-time buyer crisis, by not extending stamp duty relief beyond March 2012.
Whilst the Government is trying to breathe new life into the ailing housing market, George Osborne has been criticised for not doing enough by boosting house building in the UK and the first-time buyer market.
Peter Spencer, chief economist to the Ernst & Young ITEM Club, said: “One area where the chancellor fell short of expectations was making the housing market more accessible to first-time buyers. The stamp duty tax relief will end in March 2012 as planned and there were no further measures along the lines of guaranteeing bank loans to first-time buyers.”
“Osborne gives with one hand, and takes away with the other,” said Peter Rollings, chief executive of estate agent Marsh & Parsons. “The failure to extend the holiday for first-time buyers will undermine the government’s own attempts to kick start the first-time buyer market across the country. While the new mortgage indemnity scheme may improve the accessibility of mortgage finance to many credit-worthy borrowers, first-time buyers will need to save for longer to pay the stamp duty bill as they move.”
Such kick start schemes include the revival of the right to buy scheme first launched in the 1980s. Under the scheme, two million council houses could be available to buy by tenants. Osborne has hailed it as “one of the greatest social policies of all time” that had been “slowly and stealthily strangled” by the previous Government. Under the scheme, families will be offered discounts of up to 50% on the market value of the property. The profits made from the sale of council houses will be used to build a new affordable home for each council house purchased.
“It will take three to five years for the newly built properties to come onto the market,” said Robin King, director at property firm Move With Us. “If there is a sudden large uptake of buyers, how does the government plan to address the lack of available housing? Social housing is often built in ‘uneconomic sites’, in areas that will struggle to attract buyers. Will this help to regenerate deprived areas, or will we end up with an oversupply of properties that cannot be sold?”
John Longworth, director general of the British Chambers of Commerce, said: “In cities and towns across England, regeneration projects are stalled, with a serious impact on local business confidence. The £400m Get Britain Building fund will help unlock progress on some of these sites, which will have a positive impact on a wide range of local companies involved in construction and its supply chains. Ministers must speed the fund’s implementation so we see more spades in the ground quickly.”
Politicians have no idea about housing, so said the press yesterday morning. Why should they, it’s a market?
No one has really got any idea, so disparate is our market, and with Labour admitting they got it wrong and CLG carrying out a review of the private housing market it’s perhaps time for everyone to go back to encouraging people to move and to stop hand wringing.
Ultimately various Governments have failingly addressed the supply side of the market, and they’ve periodically tried to encourage the demand side with the resulting boom and busts. So sensitive are homeowners as voters that it wouldn’t be that prescient to suggest that interest rates are watched more for their effect on the housing market than they are for Industry or anything else.
If it is that important why is there so little attention given to keeping the wheels oiled. It’s been an immutable law that as Stamp Duty has gone up so the volume of sales has gone down. The plethora of amateur (and apart from the Land Registry that’s all they are) commentators can say what they like about whatever sector but volumes continue to fall and we’re about to get another cynical rise that’s going to lead to a further contraction.
Is it really that much of a leap of faith for the Coalition to accept that the best way they can free us the supply side of the property market is to put Stamp Duty where it should be, at 1%? There’s little doubt prices would come down in the short term but those voters they help move and get on the ladder would, I’m sure, be eternally grateful.
Ed Mead is a regular contributor to The Big Property List blog. An Estate Agent for over 30 years, he has been writing and commentating on the market for over half of that as the Sunday Times Property Expert and The Agent Provocateur for the Telegraph. He sits on the Board of The Property Ombudsman Ltd, has a regular LBC slot, and is happy to say it as it is.
House purchase loans fell by more than three times the decline in remortgages in January, according to data released today by the Council of Mortgage Lenders. This emphatically demonstrates the effect on the mortgage market from the end of the temporary stamp duty holiday in December.
There were 49% fewer house purchase loans in January than in December but only 15% fewer remortgage loans. However, the 32,000 loans for house purchase, worth £4.7 billion, were up from the low of 23,000 (worth £3.1 billion) seen in January 2009. Conversely, the 24,000 loans for remortgage, worth £3 billion, were down from 45,000 (£6.2 billion) a year ago. This is the lowest monthly level of remortgage activity – both by number and value – in eight years of available data.
Source: Council of Mortgage Lenders