Home Buyers Get No Relief From Stamp (from Sunday Herald)

Home Buyers Get No Relief From Stamp (from Sunday Herald)

ALISTAIR DARLING has been accused of failing Scottish homeowners in his first Budget because he refused to increase the thresholds for stamp duty in line with property inflation.

Bank of Scotland estimates that more than half (52%) of home buyers in Scotland paid at least 1% stamp duty in 2006, and the typical stamp duty bill is £1449. But the figure is much higher in property hotspots. In the City of Edinburgh, for example, 72% of home sales were above the 1% stamp duty threshold, followed by East Renfrewshire (70%) and East Dunbartonshire (70%).

More Scottish homebuyers are also stung for the higher rates of stamp duty, with almost one in 10 Scottish home sales over the higher threshold in 2006.

If a property is worth less than £125,000, there is no stamp duty to pay. But on homes worth more than £125,000, buyers have to fork out 1% of the entire price. The duty rises to 3% of the total house price on properties worth more than £250,000, and to 4% on a house costing more than £500,000. So if you are buying at the very top end, you could be slapped with a bill of more than £20,000.

There are early signs of a slowdown in some parts of the Scottish property market, but prices still rose at an annual rate of 13.1%, according to the latest figures from the Bank of Scotland. The typical house price is now £144,897, although the average property in Inverurie, Edinburgh, Aberdeen and Helensburgh is more than £200,000, dragging more people into the stamp duty net.

Campaigners have long called on the government to raise the stamp duty thresholds to keep pace with property inflation. If the lowest threshold had gone up in line with UK house price inflation since its introduction in March 1993, it would now stand at £191,000. The higher stamp duty thresholds were introduced in July 1997, so they would now stand at £720,000 and £1.4 million.

But the government has so far resisted - and it resisted again in the Budget. A glance at the Treasury figures perhaps explains why. Total stamp duty revenue from UK residential property sales rose by 40% in 2006-07 to a record £6.4 billion. Over the past five years annual residential stamp duty revenue has more than doubled, with a 140% rise from £2.7bn in 2001-02. Estimates of residential stamp duty revenue for 2007-08, based on government projections in the pre-Budget report, are for a 14% rise to £7.3bn, followed by a 4% rise in 2008-09 to £7.6bn.

Ron Smith, chief executive of the Edinburgh Solicitors Property Centre (ESPC), said: “The decision to again freeze the lower threshold for stamp duty at £125,000 means a record number of buyers are likely to be liable for the tax again this year. This will come as a particular blow to first-time buyers, who are already finding it difficult to find an affordable way on to the property ladder, as the simple fact is that changes in stamp duty have not reflected house price inflation in recent years.”

The number of first-time buyers in Scotland dropped to a record low of 30,000 in 2007, the lowest annual number since records began in 1988. The average house price paid by a Scottish first-time buyer has also more than doubled since 2002 to £123,213, which is only just below the 1% stamp duty threshold.

David Carmichael, area director for the Scottish offices of Savills Private Finance, a mortgage broker, said: “The number of first-time buyers who come into our offices has dropped from about 40% five years ago to about 8% today. But the Budget was a disappointment. The chancellor has done nothing to help struggling home buyers get a foot on the property ladder.”

Darling tried to appease home buyers with measures to help key workers and an attempt to encourage lenders to develop mortgages fixed for 25 years or more. But they met with a cool reception.

Michael Coogan, director general of the Council of Mortgage Lenders, said: “The modest announcements relating to shared equity schemes for key worker first-time buyers, while potentially welcome, are unlikely to provide any short-term relief to affordability and entry costs for first-time buyers in the housing market.”

But what of long-term fixed rates? The government thinks long-term fixes would shield borrowers from the ups and downs of interest rates and bring stability to the mortgage market. But the big snag with the loans is the early repayment charge. Lenders typically slap you with a penalty if you want to redeem the loan early, and early often means in less than 10 years. Carmichael is not a fan: “How many people know what they will be doing 10 or 20 years from now, particularly young people? If the chancellor seriously thinks that long-term fixed rates will help struggling home buyers, he has got it badly wrong.”