Ending Stamp Duty holiday could be crucial to Osborne's fortunes

21 February 2012 | By Samuel Dale

The policy to exempt first-time buyers from Stamp Duty on homes worth £250,000 or less was axed in the last Budget and it will soon again be levied on all homes worth more than £125,000.

With the average house price hovering around £160,000, according to the Halifax House Price Index, it will affect thousands of aspiring home owners.

Many in the property industry are calling for an extension to the holiday after statistics from the Council of Mortgage Lenders showed a 7% rise in first-time buyers in December 2011.

CML data also shows a 10% jump in the value of first-time buyers sales and is backed up by the Royal Institution of Chartered Surveyors’ monthly report showing 12% more surveyors reported rises in sales in January.

A total of 19% more surveyors expect transactions to pick up in the next three months, the highest level since May 2010.

I know of young people desperately looking for a property now to avoid the tax before the deadline.

Paul Smee, director-general of the CML, says: “We have been expecting a flow of first-time buyers in the market as the Stamp Duty exemption ends in March and December’s figures appear to show this has begun.”

But chancellor George Osborne branded Stamp Duty relief ineffective in the last Budget and not a proven way to boost numbers.

He has pledged to remove the tax relief and many property market analysts predict a slump in first-time buyers later this year to counter the current rush.

Writing in Mortgage Strategy this week Stephen Smith, director of external and housing affairs at Legal & General, says the Stamp Duty exemption has proved a lifeline for many first-time buyers and with the deadline fast approaching many have sparked many into action.

He says: “It may be worth extending the exemption to avoid a slump in sales in Q2 2012 following what looks like positive signs of life in the market.”

The Treasury could argue the year will be front heavy with first-time buyers but overall numbers will not increase.

It is a valid argument but in the current economic circumstances a boost to the housing market for another year or six months would not be unwelcome.

It also contradicts the Treasury’s assessment that the move has not been shown to boost numbers.

In response the government has promised a Mortgage Indemnity Guarantee on new-build homes in March.

The scheme will provide insurance for banks to offer 95% LTV mortgages in a bid to boost home building and help more people on to the ladder.

It looks like a replacement for the Stamp Duty holiday and unsurprisingly the property industry wants both government schemes.

The costs of the MIG are unclear but a £400m price tag was put on the overall package of housing measures announced before Christmas.

If Stamp Duty wins little favour in the Treasury its hopes for boosting the property market now rest on the housing strategy with the MIG as its headline policy.

Housing has a special place in British politics with no politician daring to question the national obsession with home ownership.

Housing and mortgages are vital both politically and economically so the longer the market stays in the dumps the quicker it will rise up the political agenda.

For Osborne construction and property transactions are crucial to the UK’s economic recovery in 2012 hence the set piece housing strategy last year.

Voters frustrated at the lack of mortgages, lack of access to the property ladder and a seeming lack of government support could be a growing problem.

It all means that how effective the MIG is in replacing the Stamp Duty holiday will be crucial for UK growth and Osborne’s fortunes this year.

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