The Council for Mortgage Lenders (CML) has appealed for a reform of stamp duty as many potential buyers turn to home extensions rather than pay the tax.
In an article written by Mohammad Jamei, senior economist of the CML, the trade body argued successive budgets and Autumn Statements have revised down forecasts for stamp duty receipts because property transactions have been subdued owing to the size of the tax and the growing preference for owners to build extensions
The trend, said Mr Jamei, has been exacerbated by the increased tax bill for more expensive properties which he argued has "materially slowed down activity at the top end of the market, leading to a fall in the average value of transactions".
He highlighted how in November the Office for Budget Responsibility (OBR) stated it expected £14.3bn in revenue from stamp duty in 2019 to 2020, but how in December 2014 stamp duty was forecasted to bring in £19.5bn a year in revenue by 2019 to 2020.
This is despite a new 3 per cent stamp duty surcharge on second homes – introduced in April 2016 – which has helped boost stamp duty receipts by 75 per cent more than was originally expected.
Mr Jamei pointed out the impact of fiscal drag, which meant nearly three-quarters of first-time buyers now pay stamp duty.
He said: "Unchanged thresholds, coupled with rising house prices, mean more transactions are subject to tax, and to progressively higher rates of tax, as they cross over the stationary thresholds.
"This is put into sharp relief by looking back to 2005, a time when most first-time buyers could expect to pay no stamp duty at all."
Mr Jamei highlighted the impact on the economy of lower housing activity.
"A low number of transactions reinforces inefficient use of housing stock. Young people find it harder to buy their first home; those in the middle struggle to trade up; and elderly people find it harder to move to homes more suited to their needs, or to unlock their housing wealth," he said.
Kevin Morgan, managing director at Consilium, said he had seen property prices held in check in his local area of Hitchin in Hertfordshire, some of which he attributed to the impact of stamp duty, but he questioned how else the government was going to raise revenue.
"It is insidious tax but where else is the money going to come from? I cannot see the exchequer letting go of the money they raise," he said.
