Stamp Duty changes revealed - So What?
September, 02, 2008
Hopes were high over the summer that the Government’s response to the housing market slump would be bold. The spin doctors were even hinting that all sorts of exciting things might happen to Stamp Duty... albeit leading to complaints from Estate Agents that sales were falling through as buyers waited to see what these were.
So, this week, you could be forgiven for feeling a little let down. The Government believes raising the Stamp Duty threshold to £175,000 (for a year) will be good news for an estimated 50% of UK property sales, but does it actually deal with the real problem? For example, not paying stamp duty is hardly going to help a first time buyer who can’t get a mortgage in the first place, not least because nowadays they may well need 10% up front. And if you live anywhere within the M25 area this might only help you if you are buying a small flat, or are in a chain where one of the buyers’ sales is completely reliant on them clawing a grand or so back.
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Realistically, if someone can’t afford a property in the first place then this modest, 1% saving (£1750 maximum) isn’t going to change that. Many (including, unsurprisingly, the Tories) want the threshold raised even further, to the £250,000 mark for all first time buyers, arguing that this is more likely to stimulate the market. Right-of-centre commentators point to macro-economic changes in the US economy leading to growth – and that means lower interest rates and tax cuts. On the other hand, the Liberal Democrats have criticised the Government for effectively enticing poorer people into buying property in a still falling market.
Given average house prices in London standing at well over £300,000 it seems fair to say that the Government doesn't seem that interested in helping the southern English or higher-value section of the market. With the other proposals centring on shared-ownership packages and other state-backed lending schemes, Labour presumably hopes that homeowners in key southern marginal constituencies are feeling generous in more ways than one at the next election... Furthermore, as experts have pointed out, the real issue is access to funding from the mortgage lenders.
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Roger Humber, of the National Federation of Builders, was quoted as saying “Today’s proposals do not address the core problem... the collapse in mortgage availability.” The big house builders should be feeling a bit cheerful though, as their share prices went up considerably after the announcement.
For their part the Council of Mortgage Lenders has called the measure too timid, spokeswoman Sue Anderson says "while any initiative to try and help the housing market is welcome, this particular move doesn’t go far enough in terms of the starting threshold and it is also getting close to the £250,000 threshold".
The feeling is that the Government has tinkered around the edges of the problem. Not that this is a cheap solution, costed at £600 million. Or, rather not costed as the Government has declined to comment on what is going to be cut to fund the plan. And in the chain-reaction world of economics, uncosted public sector borrowing on this scale might further degrade confidence in the UK economy. Which just adds to the original problem... There are no easy answers.
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Critics of the Government are arguing that bold, decisive action is required. The Government are offering a more targeted, incremental approach. Which one will work remains to be seen, with the Autumn of 2009 (when the stamp duty holiday ends) looking like a key point for both the housing market and the Government’s fortunes. 
SaveBorrowSpend Philippa Adam
