Chancellor Alistair Darling refused to rule out a suspension of Stamp Duty in a package of measures to help the housing market. But he and his boss Gordon Brown are focusing on the wrong people. They need to remove it for everyone, not just first-time buyers.
The emphasis on the discussion of Stamp Duty has been first-time buyers, but for them, Stamp Duty isn’t the problem. The issue for FTBs is simple: they haven’t got the 20% deposit most lenders now demand before they’ll grant a mortgage. With the average UK house price at £177,000 according to the Halifax, the FTB needs to have £35,000 in cash. Not having to pay Stamp Duty of £1,770 is neither here nor there. It’s not going to make lots of FTBs capable of buying their first home. So it’s not going to make a significant difference to the housing market.
The real issue, as I’ve been saying for months, is for people who are moving. I’ve given this example before: it’s a typical home mover in the South. Mr Jones has got a new job and needs to sell his house for £300,000 and buy another for the same price. He has a mortgage of £200,000. The £9,000 he will pay in Stamp Duty on the purchase of his new house represents 9% of this equity. It is effectively a 9% tax on moving, and that’s how Mr Jones is now seeing it.
Everyone involved in the real world of housing knows that Stamp Duty is now a real deterrent to moving in a way it wasn’t during the boom. The psychology is obvious. When prices are rising, and you can add the tax to your mortgage, people will happily pay £9,000 to move home. But when prices are falling, and that £9,000 is coming out of what you have to spend on your home - because mortgage lenders won’t increase your loan - then of course it is a real deterrent to moving.
So if the Government really wants to release the current logjam in the housing market, it should suspend the payment of Stamp Duty on all properties sold for under £500,000. The suspension - which means non-payment of the tax, not the Treasury’s current daft idea about deferring payment – should last until the market returns to normality, as measured by the actual number of transactions, which are currently running at levels last seen in the 1990-91 recession.
The Treasury mandarins don’t even want to think about sacrificing billions of pounds in tax revenues at a time when the public finances are in bad shape. So their spin doctors are steering the discussion to the problems of FTBs, who account for under a third of property transactions. Sadly, even George Osborne, the Conservative Shadow Chancellor, who is normally an astute player of spin, has fallen for this and has his own bad plan to ‘help first time buyers’.
And in fact, FTBs’ problems aren’t as bad as they are slated. The number of FTB loans has averaged 18,000 a month so far this year, out of a total of 47,000 per month - pretty much the same ratio as applied in 2007. In other words, FTBs have been no more badly hit by the credit crunch than homeowners with mortgages wanting to move, who outnumber them 3 to 1.
Of course suspending Stamp Duty on all properties under £500,000 would help FTBs. But it would help existing homeowners much more. And it would definitely give a big psychological boost to the market, which is exactly what is needed. This is also a simple measure, unlike targeting FTBs, which will simply encourage fraud. But with Brown and Darling playing their usual game of Tinker and Blunder, I have little hope of it being implemented.
