Calls for Stamp Duty to Support the Housing Market

18-Nov-2009

As the end of the stamp duty 'holiday' draws nearer, the debate over whether the government should increase the threshold indefinitely becomes increasingly heated.  Last year, the level at which homebuyers were liable to pay Stamp Duty on their properties was temporarily increased, in order to help stimulate the ailing property market. This meant that anyone buying a house worth up to £175,000 would not have to pay the Duty until the end of 2009, at which time it will revert back to the previous limit of £125,000.  



The current feeling is that removing the upper limit again in the early days of recovery will cause a dip in the housing market.   Gary Smith, President of the National Association of Estate Agents, said: "There is strong demand for property and more optimism in the housing market than we have seen for months. This is good news for the recovery of the market and for the UK economy in general.

"Many buyers are at the very beginning of the house buying process and this is creating a lack of properties in the short term. It is now up to the Government and the banks to do more to keep the momentum of market recovery going. A good place to start would be for the government to extend the Stamp Duty holiday, which mainly affects first time buyers, and is currently scheduled to end in December."

On a more general level, Stamp Duty is viewed by industry professionals as "damaging" and "anachronistic".  In a rare act of industry-wide collaboration, organisations including the Council of Mortgage Lenders (CML), the Association of Residential Letting Agents (ARLA) and the Home Builders Federation (HBF) have joined together to form the 1808 coalition.  The name comes from the date in which Stamp Duty was introduced for property sales in Britain.



The coalition believes that the government should do away with Stamp Duty altogether.  However, they have also suggested some alternative considerations, such as suspending the Duty on properties fully until the housing market has recovered, and changing the threshold calculation "from the distorting 'slab' system to a more progressive 'slice' system".  At the moment, a property that is valued at only several hundred pounds more than another can cost thousands more in Stamp Duty because it falls into a different value bracket.



A further suggestion for reforming the system is that the threshold should fall far above the current £175,000 to give as much assistance as possible to first-time buyers looking to get onto the property ladder.  Adrian Coles, Director General, BSA, said: "The current Stamp Duty system in the UK is archaic and in desperate need of reform and modernisation. A fairer and transparent system is needed that doesn't discriminate against young and first time home buyers, and promotes an effective housing market."



According to the Rightmove House Price Index, the average UK home cost £162,038 in October 2009, a rise of 0.4% from September.   This clearly indicates that should the Stamp Duty threshold revert to its previous level of £125,000, a large number of first time buyers will still be liable. Considering that property deposits are now far higher than they have been in recent years, it is unsurprising that a lull in the market is expected at the start of next year.  In order to keep the property market in a state of recovery, it is essential for new home purchases to remain financially viable for first time buyers.