MortgagesDec 3 2014

Market View: Stamp duty a ‘double-edged sword’

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Stamp duty tax jumps that buyers suffered around the top of each band have been smoothed out under the latest radical taxation overhaul announced by George Osborne, but no one yet seems to know yet what impact this will have on property prices.

Clearly, house price indices will have to be watched closely moving forwards as those who had kept their property prices below the stamp duty level in a bid to attract buyers may no longer feel the need to do so.

Where industry experts were united was in their cheers for chancellor George Osborne’s abolition of a “slab” approach to stamp duty, with a more progressive income tax-style system replacing it and offering a potential cut in tax to 98 per cent of property buyers.

With effect from midnight tonight, no stamp duty tax is payable on anything under £125,000, and buyers will pay 2 per cent on the difference between this and £250,000. Up to a property worth £925,000, 5 per cent tax is due, 10 per cent up to £1.5m, and 12 per cent thereafter.

Paul Broadhead, head of mortgage policy at the Building Societies Association, said this was the year the chancellor “pulled a real rabbit out of the hat” with stamp duty. He said a progressive system of stamp duty taxation for home purchase was “far fairer.”

Mr Broadhead said: “It will help individuals and families buy their own home, and smooth out the crazy tax jumps buyers have suffered around the top of each band.

“We have been calling for this reform for years and the best I was hoping for was a consultation. So the announcement of a fully worked through proposal, effective from midnight tonight was a massive but welcome surprise.

“The single disappointment was that the opportunity to raise the bottom £125,000 band up at least in line with inflation was not taken.

“That said, buyers, whether first timers or families moving into a larger home will benefit, whether they are in London or other parts of England, Wales or Northern Ireland. Scotland is included too until the end of March 2015.”

However Jamie Morrison, partner at Chartered accountants HW Fisher and Company, said the replacement of the stamp duty slab system with a new system is potentially a double-edged sword, as it will “benefit buy-to-let investors as much as the first time buyers it is trying to help”.

Mr Morrison said: “It is difficult at first glance to see how this measure will achieve the chancellor’s stated aim of helping people get onto the property ladder.”

Although the new system will create losers as well as winners, Paul Smee, director general of the Council of Mortgage Lenders, said the vast majority of mortgaged transactions will benefit from lower tax as a result of this move.

CML data suggests that, among mortgaged transactions over the past year, 21.6 per cent were for less than £125,000, 47.9 per cent for £125,001 to £250,000, 29 per cent for £250,001 to £925,000, 1.1 per cent for £925,001 to £1.5m, and 0.4 per cent for more than £1.5m.

The trade body’s calculations show the proportion of mortgaged transactions that would pay more tax under the new system is around 1.5 per cent.

Karen Barrett, chief executive of Unbiased, argued the changes to stamp duty will have huge implications first-time buyers in particular as they “will be more likely to be impacted on the changes at the lower end of the scale”.

Unbiased recently published research which showed that buying a property is one of the most significant ‘advice moments’ for people across the UK, and Ms Barrett said these reductions in stamp duty mean that the overall cost of buying will come down, and therefore what people can afford and how they manage the journey to reaching their savings goal will change.

Alex Gosling, managing director of online estate agents Housesimple, agreed with the view the chancellor could have gone further and extended the zero per cent band to £250,000, but added “something is better than nothing”.

emma.hughes@ft.com