UK Real Estate - Stamp Duty
Speculation surrounding the future of Stamp Duty has been rife in the media recently, with reports that the government stands to lose up to £3bn of revenue from the tax on buying a property due to the slow-down in the UK housing market. Here Tearle Phelan, head of residential development and partner at Knight Frank, considers whether a Stamp Duty 'holiday' or suspension would have any impact for today's homebuyers, and whether such an unprecedented move would help to revitalise to the market.
Contents at a Glance
Stamp Duty
"Income from Stamp Duty is an important source of cash flow for the government, with the Treasury profiting to the tune of £6.5 billion between 2006 and 2007. However, with prospective homebuyers facing issues of affordability, there has been talk that the government is considering a shake-up of Stamp Duty in order to ease the financial pressure on those looking to get on or move up the property ladder.
"The percentage of stamp duty payable varies depending on the price of the property being purchased, with homes under £125,000 being exempt from the tax. For homes between £125,001 and £250,000, a one per cent tax is applicable, this rises to three per cent for homes between £250,001 and £500,000; and for homes which sell for more than £500,001, stamp duty is payable at four per cent of the property's value.
"Stamp Duty has been reviled by many commentators who have pointed out that, since its introduction, the banding system has not changed to reflect the growth in house prices. However it has recently been widely suggested that the government is considering implementing Stamp Duty holidays or other methods which would enable buyers to defer what can be quite a considerable one-off payment.
"The percentage of stamp duty payable varies depending on the price of the property being purchased, with homes under £125,000 being exempt from the tax. For homes between £125,001 and £250,000, a one per cent tax is applicable, this rises to three per cent for homes between £250,001 and £500,000; and for homes which sell for more than £500,001, stamp duty is payable at four per cent of the property's value.
"Stamp Duty has been reviled by many commentators who have pointed out that, since its introduction, the banding system has not changed to reflect the growth in house prices. However it has recently been widely suggested that the government is considering implementing Stamp Duty holidays or other methods which would enable buyers to defer what can be quite a considerable one-off payment.
Costs
"While a suspension on Stamp Duty could save the average buyer between £5,000 and £9,000, those who would really benefit from such cuts are first time buyers who are looking to buy a property above £125,000. Whilst the prospect of saving thousands of pounds may be a considerable help for buyers, Stamp Duty is actually not the source of all the problems with the housing market - first time buyers are being faced with far greater obstacles when purchasing a home.
The Mortgage Market
"Difficulties in securing mortgage deals and escalating arrangement fees are currently proving to be massive hurdles for buyers. In the present market a first time buyer needs a 10 per cent deposit to secure a mortgage with any lender, although this figure is changing week to week and affecting the position of home buyers regularly.
"Even if a buyer has the necessary deposit to secure a deal with a lender, mortgage arrangement fees are so high at present that many buyers are being turned off and are choosing to postpone purchasing their own home. Last year, mortgage arrangement fees were around £300, now buyers are facing bills of anything from £1,000 to £3,000, which is a steep rise in this initial expense. The government is powerless to cap this fee which is why alternative initiatives are being explored with a view to improving the situation for buyers.
"Even if a buyer has the necessary deposit to secure a deal with a lender, mortgage arrangement fees are so high at present that many buyers are being turned off and are choosing to postpone purchasing their own home. Last year, mortgage arrangement fees were around £300, now buyers are facing bills of anything from £1,000 to £3,000, which is a steep rise in this initial expense. The government is powerless to cap this fee which is why alternative initiatives are being explored with a view to improving the situation for buyers.
Buying now or Later
"Despite the difficult market conditions, now could actually be a good time for buyers to get on the property ladder.
For the right type of buyer with solid financial credentials - a stable job and a lack of debt - there are some sensibly priced gems out there, so now is a great time to start a property search. The difficulties only arise when attempting to secure finance through a lender, as all mortgage lenders are being very cautious at the moment - although there are tentative signs that lenders are relaxing their strict approach."
For the right type of buyer with solid financial credentials - a stable job and a lack of debt - there are some sensibly priced gems out there, so now is a great time to start a property search. The difficulties only arise when attempting to secure finance through a lender, as all mortgage lenders are being very cautious at the moment - although there are tentative signs that lenders are relaxing their strict approach."
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