Stamp Duty, Darling?
Alistair Darling has finally made his move on stamp duty by increasing the 1% threshold from £125,000 to £175,000 for the next 12 months.For weeks speculation has been rife over a possible stamp duty holiday. And many believe this resulted in further market deterioration, as buyers delayed purchases until a decision was made. How significant this was will never be known but one thing is for sure it didn’t help!
The most immediate affect of the duty change has unfortunately been negative. Several of our buyers have attempted to re-negotiate deals previously agreed just above the new threshold and so avoid stamp. We believe this is only a short term issue while the market realigns to the new threshold.
The market for properties just above stamp duty thresholds is always more difficult. And especially in current market conditions buyers are likely to try and negotiate sales below the new threshold to avoid stamp. Vendors marketing at levels between £175,000 and £200,000 could find the new threshold a real issue when it comes to selling.
However less tax is normally a good thing and we believe that the overall impact of the stamp duty change will be positive. The government estimates that around 50% of property sales are likely to be stamp duty exempt. Latest figures from the Halifax suggest average house prices have fallen to £174,178 so in coming months the proportion of sales under the threshold is likely to increase further.
Reduced overall buying costs will enable more people to buy now rather than having to wait to save more. Without duty buyers will have an extra £1,250 to £1,750 to put towards their deposit. Lenders are requiring larger deposits and bigger arrangement fees but with less tax buyers will have more cash to put towards their mortgage.
If properties start to sell below £175,000 those vendors will then be in a position to start buying higher value properties, and so give the whole market a lift and stop the rot.
That is the plan anyway. Overall we think it will just add a bit of temporary confidence to the market that will quickly dissipate on the next negative news from the housing market or wider economy.
So did it go far enough? Obviously wider stamp duty reductions would have helped more buyers and had more impact. However the main issue is the credit crisis and lack of lending not stamp duty. In short it was a good headline but he was just tinkering around the edges.
What will happen in September 2009? If the market hasn’t improved significantly then return of the £125,000 threshold could halt any fledging recovery and put the market back months.
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