Updated facts on the stamp duty changes

I have a confession to make.  I wasn’t aware of the change in stamp duty until after the budget, and made this stamp duty post in haste. Shortly afterwards I went back in and edited out some of the content.  The reason being the stamp duty threshold increase wasn’t all it seems.

Initially I was under the impression that this was an increase for everyone but when I looked at the small print I discovered it is for first time buyers only, and these buyers need to prove that they have never previously owned a property.  On top of that the new limit is only effective for 2 years.

Having a limit for 2 years is hoping that the market is going to remain flat because any seller at the moment is never going to sell their property if it is valued above the stamp duty threshold at say £260k.  Properties over the £250k threshold have 3% stamp duty to be paid by the buyer, so a £260k property has a £7,800 duty on it.  That sale is just not going to happen.

First time buyers will find that benefitting from the stamp duty holiday is not that easy.  Typically anyone who has dropped out of property ownership and has rented for a number of months is seen by most lenders as a first time buyer again.  However, the rules state that no property can ever have been owned by the potential buyer, which means that in a partnership neither party can have previously owned of a property anywhere in the world.

The main problem which seems to have been overlooked by the government is the availability of competitive mortgage deals, and the pressure on first time buyers to come up with high deposits.  The Financial Services Authority revealed that the deposit required by around 75% of buyers was 25% in the backend of 2009.  On the average house price that is a £40,000 deposit which is just not possible for most first time buyers.

Michael Coogan the director general of the Council of Mortgage Lenders commented:

“The Budget offers a modest potential boost to the housing and mortgage market in terms of reducing transaction costs for first-time buyers, and potentially improving efficiencies for lenders. But as always the devil is in the detail, and the detail is confused. The stamp duty concession in particular looks like a tax loophole waiting to happen.

“While the Chancellor rightly welcomes the fact that the government-supported banks exceeded their mortgage lending commitments last year, the Budget was disappointingly light on any detail of how the government proposes to work with the industry as a whole to find a route back to a sustainable and reliable funding framework to safeguard the ability to deliver the lending needed to support future demand.”

So with high deposits, few mortgages and now a selling void of properties between £250-£260k the initial news of the new stamp duty threshold seems a little bit of a false dawn unless steps are taken to improve the mortgage market.  I guess the real bad news is for the £1 million plus market as the increase to 5% means at least an extra £10,000 in stamp duty, and that increase is here to stay.

Related posts:

1. Stamp Duty – Stamp Duty Limit Raised in 2010 Budget
2. Mortgages for First Time Buyers
3. Nationwide – 1% Drop In House Prices Feb 2010
4. 100 percent mortgages in 2010
5. 3 Disastrous Decisions When Buying a House