Cautious optimism rules in the estate agency sector, although tax relief for all buyers would have been nice
The chancellor’s Budget announcement that the Stamp Duty threshold will be doubled to £250,000 was broadly welcomed in the estate agency market.
But there was a sting in the tail for agents specialising in the top end of the market, where Stamp Duty on properties over £1m will go up to 5% of the purchase price.
I believe this could reduce transaction volumes for properties in the £1m to £2m price band as many individuals who are not cash-rich have found themselves owning these houses by accident due to rising property prices in the past decade and what seemed at the time to be unstoppable market momentum.
Once you move up to higher value properties the increased tax will have a marginal impact.
The changes outlined in the Budget only apply for two years but in the housing market as well as in the world of politics, two years is a long time.
The extension of the Stamp Duty threshold should stimulate the market from the bottom up, as potential buyers have been struggling to get on the property ladder in recent times. But will the move be sufficient?
Halifax data released in January revealed that 38% of the mortgages arranged in 2009 were for first-time buyers and that affordability had improved dramatically as interest rates had fallen. That said, transactions overall are still a long way from the heady days of 2007.
A survey of Royal Institution of Chartered Surveyors members shows that 56% think the increase in the Stamp Duty threshold for first-time buyers will stimulate the market.
Although risks remain I believe that after the election we will see a steady increase in transactions
But I would have preferred the change to have applied to all property purchasers rather than just first-timers.
This would have brought more properties onto the market and increased confidence more broadly.
One of the challenges yet to be resolved is how first-time buyers will be defined.
At the moment it looks like a couple where one partner has not previously owned a home but is moving in with someone who has owned a property before would not qualify, if the house is bought jointly.
In our estate agency businesses, which include Connells, Sequence, Sharman Quinney and Pattison Lane, the number of new house instructions has increased by around 20% so far in 2010 compared with the same period last year.
So we now have more fresh stock on our books at realistic prices and this, coupled with the reduced cost of moving, means we should see sales transactions increase further.
But the mortgage market remains the main drag on activity in the property sector, with mortgages at 90% LTV and above in short supply and still relatively expensive.
It remains a challenge for first-timers to save enough money for a deposit even though the cost picture with regard to Stamp Duty has been improved by the Budget move.
Meanwhile, other risks remain such as increasing unemployment in the public sector and uncertainty surrounding the general election.
But overall I am cautiously optimistic and believe that after the election we will see a steady growth in housing transactions.