Stamp Duty Slowing Down First-time Home Buying In The UK

Despite Gordon Brown have doubled the threshold amount before you have to pay stamp duty on home purchases in the UK - from £60,000 to £120,000 - in last year’s budget, with the average cost of a home in the UK now reaching the lofty heights of £200,000, many first-time buyers in the UK are facing the prospect of having to pay stamp duty on their property purchase.

According to the latest figures released by Britain’s Council of Mortgage Lenders, the slow-down in first-time buyers in the UK housing market can be partly blamed on the fact that stamp duty is now very much a part of the equation of buying a home. The number of first time buyers having to pay stamp duty on their first UK property purchase rose a staggering 8 percent last year to 56 percent (up from 48 percent the year before).

The additional burden on first time property buyers in the UK is being put down as causing many Brits to claim that they can no longer afford to buy a home. Given that stamp duty is charged at the rate of 1 percent on the value of properties worth between 125,000 and 250,000; 3 percent on properties worth 250,000 and 500,000; and 4 percent on property worth more than that, this argument is hard to counter.

Given that UK home mortgage lenders are now having to introduce innovative and creative calculation methods to allow UK first time buyers to purchase their own home, additional costs associated with that purchase, such as high deposits and stamp duty, are going to put additional burdens on such young shoulders. However, with UK property stamp duty revenues having tripled in the last 8 years, and having swelled the coffers of the UK treasury to the tune of £12.2 billion, it is highly unlikely that Gordon Brown is going to be generous enough to once again increase the stamp duty threshold so shortly after his last adjustment. The fact that UK house prices having been rising significantly during this period is also unlikely to find much comfort with Mr. Brown.

All in all, with just 35 percent of the total number of new mortgages in August, the lowest level since April 2005, the fall in UK first time home buyers is likely to be sustained until such time as UK home mortgage loan lenders can find attractive ways to offset this growing concern.

Richard Smith
12th October 2006

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