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Stamp Duty Threshold Raised in a Bid to Help… Whom?
The jury is out on whether the aim of the Stamp Duty Land Tax (“SDLT”) changes is mainly to help boost a struggling property market or a struggling government; and on whether the changes will make much difference to either.
The first move is to raise the stamp duty land tax threshold by £50,000. Brought in for a twelve month period from 3rd September 2008 to 3rd September 2009, a home must now sell for £175,000 before SDLT is payable. The move allegedly lifts the number of exempt transactions from one-third to one half of all residential sales. Whether a saving of 1% on the transaction cost will tempt first-time buyers to take the plunge into a market which many think still has some way to fall is open to doubt, as is the question whether the government are acting responsibly in bribing them to do so. Some commentators envisage no immediate effect but a Gaderene rush to complete in a year’s time. Early speculation says that this move is expected to cost the public purse some £600 million: details of how this will be financed are promised in the Chancellor’s autumn pre-budget report.
Other measures announced include an extension of the powers of councils and housing associations - allowing them to pay off homeowner debt, and then rent the property back to the owner - and a big reduction to just 13 weeks in the waiting time before which income support is paid for mortgage interest.
The government has also introduced HomeBuy Direct. Although initially reported as “interest free loans”, the detail now published (see HomeBuy Direct) shows that this is in fact essentially a shared ownership scheme. Under the scheme, limited to 10,000 households earning less than £60,000, the state will offer to buy an equity share of up to 30% of a new-build property. The owner has the option to buy the state out (at cost) at any time: there is no charge for the first five years but “interest” is charged on the equity stake at 3% a year for the next four years and at base rate and rising thereafter. Effectively therefore the government is offering to finance with public money that slice of equity which commercial lenders consider too high-risk. Cynics would say that as a poison-pill to an incoming Conservative government it is quite effective: the five-year point at which the equity must be either bought out or funded seems calculated to fall shortly before the next election but one… Whether this stunt - or any of the other measures - is likely to have much effect on the housing market is another question altogether.
For more information please contact David Whiscombe.
