Where does this leave the industry and homebuyers? In short, still paying far too much tax on property transactions. One of the driving forces of the property market is first-time buyers. First-time buyer activity in 2004 has been disappointing – they have had the twin pressures of interest rate rises and stretched affordability. This is starkly evidenced by the facts: in 1999 47% of all house purchase mortgages were first-timers and by 2004 this had dropped to 28%. Contrasted against affordability, income multiples had increased from 2.29 x to 3 x over the same period. Headlines shouted that mortgages were more expensive and first-time buyers had to borrow more to enter the market. Now that’s what they call a double whammy.
Add the issue of taxation and that’s what they call a triple whammy. For most first-time buyers a 1% tax is an unwelcome addition to the costs of entering the property market. Gordon Brown should have helped those getting on the ladder by at least a temporary suspension of Stamp Duty in the £60,000-£250,000 bracket. To add insult to injury the Irish government raised Stamp Duty for first-time buyers on all non-new build properties to e317,500.
What is particularly galling is that many lenders have been investing heavily in supporting social housing schemes and assisting customers with innovative mortgages such as shared ownership and key worker schemes. These are the customers who would benefit most from the changes in the Stamp Duty threshold. One of the many successes of the industry has been the opening up of markets that were previously seen as risky. The government took a consultative approach working with the industry to ensure the lenders’ support could be relied on. It is a shame that Treasury does not take a similar approach with this issue.
Perhaps memories of government intervention are still raw – remember dual MIRAS? Or perhaps the Treasury thinks Stamp Duty acts as a brake to slow the market. Or maybe the tax revenue streams are just too important.
Stamp Duty is a catch-all tax with indexation at its core, and virtually no-one can avoid it. I don’t think it’s unreasonable to ask that tax thresholds should be adjusted to reflect asset value increases. The best people to ask would be first-time buyers, but you may be hard pushed to find one.