Stamp duty

One of the key proposals in Alastair Darling's pre-election budget was a two-year stamp duty holiday on property bought by first-time buyers for less than £250,000, as well as a 1% increase in the rate payable for properties sold for more than £1million.

Curiously, whereas the first measure was implemented with immediate effect, as things stand the latter is only due to take effect from April 2011.

The one-off increase in turnover that occurred in December last year, immediately prior to the end of the preceding stamp duty holiday, demonstrates the short-term distortions which these types of measures can have on the market. However, looking at the year as a whole, transaction levels were severely constrained, suggesting that in isolation these measures are rarely market shifting.

Our analysis of stamp duty receipts, transaction levels and average residential values indicates that the average stamp duty paid on a transaction in England and Wales increased from £1,500 per property or 1.33% of the average property value in 2000/01 to £4,900 per property or 2.21% of the average property value in 2007/08.

First-time buyers and investors

For first-time buyers stamp duty savings will help towards raising a deposit, but according to the Council of Mortgage Lenders, the average deposit is now near to 30% of the purchase price. Therefore, unless first-time buyers are able to draw upon ‘the bank of Mum and Dad’, this measure is unlikely to open up the market to those households currently excluded from the mortgage market.  

Arguably, a more effective measure in meeting the requirements of these households would have been to review stamp duty on the acquisition of residential investment portfolios, which are essential providers of the type of rental accommodation these households are most likely to occupy.

At the other end of the scale, delaying the increase in stamp duty for transactions over £1million is likely to bring some additional property to the market this year and into early 2011.

Realistically the increase will have little bearing on affordability, but human nature is such that buyers will look to avoid a tax liability where possible. This could support the prime country house market in a year when values may soften in the wake of underlying market conditions.