THE pressure on the government to raise the stamp duty threshold, or abolish it altogether, was intense in the build up to the temporary increase it announced this week. But expert consensus is that the measure will have little impact because it fails to address the real problems afflicting the housing market.
Under the change, introduced on Wednesday, anyone buying a home for between £125,000 and £175,000 in the next year is exempt from the 1 per cent stamp duty tax payable, in addition to the permanent £125,000 limit. So, for example, someone buying a pr
operty for the new upper limit of £175,000 will save £1,750.
The new limit means around half of all UK property deals will now be exempt from the tax. That ratio will be far higher in Scotland, with an average house price of £155,691 north of the Border, compared with a UK average of £174,178, according to figures published by Halifax this week. What's more, with house prices falling, more properties are falling below the threshold.
But many experts feel the new measures fail to address the real reasons for the housing market paralysis – primarily mortgage availability. "A suspension for one year on stamp duty for properties up to £175,000 is absolutely not the answer to the problem," said Ray Boulger of mortgage adviser John Charcol. "Yes, it will help a small minority of people, but the issue lies more with mortgage lenders and their 'shut up shop' attitude to lending above certain loan-to-values. The government needs to address this situation above all."
It's worth noting that the average first-time buyer property in Scotland cost around £123,213 in 2007, according to the Bank of Scotland, comfortably below the stamp duty threshold.
"On that basis, the threshold increase is going to have no impact," said John Postlethwaite, a consultant at Punter Southall Financial Services in Edinburgh. "The most buyers can save is £1,750 and compared with the total cost of buying, that's a drop in the ocean."
The problem lies instead with the lack of mortgages available to first-time buyers with deposits of less than 10 per cent, said Postlethwaite. "If first-time buyers could borrow 95 per cent of the value at a decent rate, that would be a real help."
Presently, however, lenders are competing only for mortgages in the loan-to-value region of 65-75 per cent. "As money becomes freer you would assume they would increase the area of competition," said Postlethwaite. "Bank of England funding is one issue, but if the big lenders can compete on some levels, it's obvious they have some money to compete with."
The impact of the stamp duty change would be greater if the threshold were raised by more than £50,000 or abolished altogether, some experts claimed. According to John Charcol, a total suspension of stamp duty would have cost the government less than £2 billion a year.
"Help is needed right across the board," said Postlethwaite. "Transactions are lower not just because there are less first-time buyers, but because people at all levels aren't buying. Second and third-time buyers would arguably benefit more from a stamp duty exemption as they can access the cheaper finance that first-time buyers are unable to get at the moment."
If anything, the biggest winners from the move could be buy-to-let investors, who typically target the end of the market affected by the threshold change.
"Almost 95 per cent of all buy-to-let sales to investors in the UK are for properties under the new stamp duty threshold of £175,000," pointed out Stuart Law, chief executive of Assetz. "Serious property investors who have already been increasing their activity due to improved affordability will now also benefit from a financial bonus, which can only help increase this activity."
Cut won't break the chains that bind usIT'S now a year since the Lawtons put their second home on the market, and the new stamp duty threshold is not going to make much difference.
With a fixed price of £295,000, the temporary threshold increase to £175,000 is unlikely to do much to kickstart the static chain hindering Alan and Susan Lawton, of Glasgow, in their bid to sell the property.
Most of the interest in the Lochearnhead house, being sold by agents Strutt & Parker, has come from England. With the housing market south of the Border more stagnant than that in Scotland, realistic offers have been thin on the ground despite a location that has views of the loch and hills.
"The feedback we've had is that people who have taken less for their property believe we should do the same. But they don't appreciate that Scotland hasn't seen the same house price falls and the offers were a long way down on Strutt & Parker's recommended price, even though we have now dropped it," said Susan.
In this respect, believes Susan, abolishing stamp duty altogether could have made a difference by having the affect of encouraging people and kickstarting a slow market.
"I'm not sure what impact the new threshold will have on the chain below us. Only if it's abolished would it make a difference in moving things on," said Susan. "I think the increase is a bit of a token gesture."
One buyer first announced their interest a year ago, but typically of the problem encountered by the Lawtons, they have been unable to complete their own sale.
"We have reduced our asking price but they just can't sell their property, " said Susan.
"The lending situation has to be addressed as the availability of mortgage finance would make a difference."
The full article contains 961 words and appears in The Scotsman newspaper.
