Prospective property buyers are being advised to act now before a special stamp duty “holiday” winds up at the end of the year.
Investors looking to buy smaller properties for their children or a holiday home – as well as first-time buyers – have been reaping the benefits of the stamp duty holiday for more than a year.
Since September 2008, properties worth between £125,000 and £175,000 have been exempt from the normal stamp duty rate of 1 per cent, as the government attempted to boost demand in the stagnant housing market and offer aid to first-time buyers.
The “holiday” has already been extended once. In April, the government said that prospective housebuyers would have a further three months’ exemption to December 31.
But mortgage advisers say that it is unlikely that the exemption will be extended again – meaning that anyone thinking of buying a house within that price band should act fast to exchange contracts before this date.
“If you’re in the process of buying a property, it’s well worth trying to fit in with that deadline – it’s a bit of a perk,” said Melanie Bien at Savills Private Finance.
Normal rules on stamp duty are expected to resume from January next year. Stamp duty of 1 per cent on properties over £125,000 will apply, along with 3 per cent on properties over £250,000 and 4 per cent for those over £500,000.
There were calls this week for the stamp duty holiday to be extended. A coalition of the National Association of Estate Agents and the Association for Residential Letting Agents said the tax was a barrier to entry for first-time buyers and “unfairly penalised” people investing in buy-to-let portfolios.
The threshold for stamp duty paid on the purchase of a property has been steadily rising in the past few years, from £120,000 in 2005 to £125,000 in 2006, followed by the temporary rise to £175,000 in September last year.
Findaproperty.com, a property search website, calculates that the stamp duty holiday has cost the government about £200m – 0.1 per cent of the amount it has spent on bailing out the banks.
But the stamp duty holiday has had only a muted impact on the housing market, which mortgage advisers say is likely to mean it will not be continued.
“Transactions are still at woefully low levels so it hasn’t been a huge success from the government’s point of view,” said Bien. “I don’t think people should assume it will be extended.”
However, buyers were warned not to make a stamp duty saving of £1,750 on a £175,000 property the main reason for buying a lower value house before the new year.
Ray Boulger, a mortgage adviser at John Charcol, warned that if people rush to try to complete a purchase before the stamp duty exemption deadline, this could have the effect of pushing up prices beyond the amount that would have been saved on stamp duty.
“If you’re so focused on saving on stamp duty, you might pay more on a property than it’s really worth,” he warned.
However, those who believe house prices are set to rise further may have reason to buy now. Nationwide said this month that UK house prices are now at the level they were a year ago, following the fifth consecutive month of rises.
Even so, there is a lack of consensus on whether house prices are on an upward trend. High unemployment and the difficulty of obtaining mortgage finance are still causing many to take a more bearish view.
Some believe house prices have only been pushed as high as they have because of a lack of supply.
Nationwide said it would be “surprising” to see house prices increase at the same rate they have done in recent months.
