End of Stamp Duty holiday unlikely to boost market

The end of the Stamp Duty holiday for first-time buyers in March 2012 is unlikely to result in a significant surge in transactions, according to Capital Economics.

Since March 2010, first-time buyers have been exempt from paying the 1% Stamp Duty on properties worth less than £250,000, but from March 25 2012 all buyers will pay Stamp Duty on properties worth more than £125,000.

Capital Economics says that past experience suggests housing transactions can increase by between 20% and 40% in the final months of a Stamp Duty holiday, but in this case any uptick in activity is expected to be more modest.

It says this is because the exemption applies only to first-time buyers rather than all consumers, and also because of the worsening economic outlook.

It says the 1991/92 Stamp Duty holiday and the 2008/09 holiday – both of which caused a surge in transactions – came at a time when the economy was emerging from recession, compared to today’s fears that we are currently facing one.

Capital Economics adds: “Of course, with the market still in the doldrums, it is perfectly possible that the Stamp Duty holiday is extended. But while the market remains overvalued, the chances that a Stamp Duty holiday will provide a kick-start for transactions, or even a material short-term boost, seem remote.”