Calls For Stamp Duty Reform
New Chancellor Alistair Darling has been called upon by experts in the property industry to give stamp duty a complete overhaul after figures showed that 60% of first-time buyers are having to pay the tax.
Against the background of the toughest time for first-time buyer affordability, the Council of Mortgage Lenders (CML) has issued figures that show the pain that stamp duty is adding.
The wider picture is also worse, with now 86% of homebuyers having to stump up the tax to fill Treasury coffers just to move home.
The figures from the CML show that first-time buyers are borrowing more than they have ever done before, as they are taking on loans which represent 3.37 times their income. Recent figures also showed that mortgage interest payments now average 19.1% of income. These figures are up on those from April which were 3.33 times income and 18.7% of income.
Former Chancellor, now Prime Minister Gordon Brown promised to make affordable housing more accessible, but he failed to lighten the burden of stamp duty in his time at the Treasury. Stamp duty bands are currently zero up to a sale price of £125,000; 1% from £125,000 to £250,000; 3% £250,000 to £500,000; and 4% above £500,000. Industry experts hare hoping that Mr Darling will make his mark by bringing in substantial changes to the system. One of the most unfair parts of the system is that once a threshold is passed the rate of duty is payable on the whole value of the property. Some campaigners have lobbied for stamp duty to change to be like income tax, in that different band values have the percentage only applied to them. So, for a home sold for £300,000, the first £125,000 would be free of stamp duty; the next £125,000 would be taxed at 1%, and the remaining £50,000 would be taxed at 3%. That would mean a stamp duty hit of £2,750. Currently, for a house sold at £300,000 stamp duty is a withering £9,000. It certainly represents a substantial windfall for the Treasury.
The CML commented that affordability was getting worse every month, and stamp duty is exacerbating the situation. They called for it to be addressed urgently.
Interest rates went up again last week and those have not yet reached those with mortgages or new buyers. When they do affordability will be worse than ever, taking the income multiples and mortgage interest proportions above their already record levels.
The rise in house prices has meant that people buying homes have had to take on larger loans as well as being hit by stamp duty. The Halifax says that the average UK home has now reached £194,500, which is getting on for £70,000 higher than the zero stamp duty threshold. In London and the South East the situation is worse, with many paying stamp duty above the £250,000 threshold (meaning stamp duty of a minimum £7,500). Where would anyone find a home for less than £125,000 in the capital? A one-bedroom flat now averages £250,000, and the average price for a home in London is £313,000.
Centre-right think tank Policy Exchange recommended earlier in the week that stamp duty should be abolished or completely revised.
Tom Smith
20th August 2007
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