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Dismay at Budget stamp duty announcement

Wednesday, 22 March 2006 12:00 AM

Gordon Brown's decision to increase the stamp duty-nil threshold by only £5,000 has been met with widespread disappointment.

The chancellor announced in his Budget speech today that he was raising the threshold at which stamp duty is paid from £120,000 to £125,000.

Mr Brown claimed that combined with the last Budget when he raised the threshold from £60,000 this latest measure means that the government had taken 400,000 homebuyers outside of the stamp duty threshold.

But estate agents and mortgage lenders have expressed their disappointment at the move, with words such as "derisory" and "negligible impact" common in their reactions.

Figures from property website Rightmove highlight why they are right to be so disappointed.

In its database of nearly 600,000 properties only 18.3 per cent are valued at under £125,000 nationally, while in London only 2.2 per cent are valued at under £125,000.

The picture is only marginally better in the south-east where eight per cent of properties are valued below £125,000 and the south-west where 11 per cent are below the new threshold.

In addition, official government figures show that the average house price in the UK moved up to £188,191 in January.

The Council of Mortgage Lenders (CML), meanwhile, points out that while 29,000 households would have escaped stamp duty last year if the threshold had been £125,000, in the last 12 months an additional 56,000 households became liable for stamp duty purely as a result of house price rises.

The CML also points out that if Labour had raised stamp duty in line with house price inflation since it came to power, the lower threshold would now be more than £145,000.

The Royal Institution of Chartered Surveyors (RICS) said it was "extremely disappointed" the chancellor had not raised the threshold to £150,000.

Rightmove said it would need to be raised to £166,000 to help most first-time buyers because they typically account for 40 per cent of all buyers and this is the figure that would exclude 40 per cent of property for sale in England and Wales from stamp duty.

Another long-term criticism of stamp duty is the so-called slab approach. There are three levels at which stamp duty is paid: At £125,000 the tax is charged at one per cent, rising to three per cent at £250,000 and to four per cent at £500,000.

Critics of the tax, including RICS and the Building Societies Association say this causes clustering, and RICS recently put forward proposals to introduce a system similar to income tax (Full story).

But one mortgage lender, GMAC-RFC, says significantly raising the threshold at which stamp duty is paid would not make a whole lot of difference. It has conducted research showing that only half of non-homeowners said they would buy immediately if financial obstacles were removed.

What they are saying about stamp duty

Mortgage Lenders

"Although the stamp duty starting threshold has helpfully been raised, the number of buyers who would have escaped stamp duty last year as a result of the uprating is outweighed by those who become liable for stamp duty as a result of rising house prices." Peter Williams, CML deputy director general

"Raising the threshold for stamp duty on residential transactions from £120,000 to £125,000 will be of negligible impact." Peter Charles, chief economist for Bradford & Bingley

"This is not enough. A stamp duty threshold of £125,000 is still nine per cent below the average house price for the first-time buyer which stands at £135,742 today (Source: ODPM)." Stephen Leonard, director of mortgages at Alliance & Leicester

"GMAC-RFC's research shows that even a substantial rise in the level at which stamp duty has to be paid is extremely unlikely to bring first-time buyer lending back up to the 50 per cent levels of previous years because of the fundamental shift in attitudes." Jeff Knight, director of Marketing for GMAC-RFC

"While any increase in the stamp duty threshold helps alleviate pressure on first-time buyers, the fact remains that this tax is ripe for a complete overhaul."Adrian Coles, director general of the Building Societies Association

Estate Agents<>

"The new threshold of the stamp duty will not affect the housing market. The supply of property under £125,000 is very limited." Rightmove.co.uk

"Stamp duty presents the one of the largest barriers to first-time wanting to purchase property. Yet again the chancellor has let this important group down." Peter Bolton King, chief executive of the National Association of Estate Agents

Surveyors

"This Budget misses another opportunity to address the problems of stamp duty and provide a fairer and more appropriate system that would truly assist first-time buyers." Milan Khatri, RICS chief economist

House builders

"The government may have raised the stamp duty threshold for a second year running, but £5,000 is not enough." Philip Davies, chief executive of Linden Homes

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