August 5, 2008
Will a stamp duty holiday save the property market?
The facts first. Reports of a stamp duty holiday for all home buyers appear to be wrong.
Instead, the Treasury is considering the “deferral” of stamp duty; just for first-time buyers. They would have to pay the money back in the future, a bit like a student loan.
So not necessarily a big vote-winner then.
More importantly, would a stamp duty freeze kickstart the property market? I doubt it. Sales have frozen because banks will no longer lend as much as a year ago; as simple as that.
So, a typical first time buyer purchasing an average home (£180,000) has a dilemma. Last year he could borrow, say, £150,000. Now he can only borrow, say, £110,000. Unless prices drop further, he has a £40,000 hole in his finances.
Not paying stamp duty on this purchase would save him - falling in the 1 per cent bracket - a mere £1,800.
It’s a token gesture; no more.
PS
As an afterthought - if anyone doubts me - take a look at almost any newbuild scheme in the UK. A year ago you could get a discount of 5 per cent. Now you can haggle 20 per cent off a new flat.
And still no one is buying.
PPS
We pointed out weeks ago that the stamp duty take is already set to plunge this year. Which is a separate headache for the Treasury. (The £10bn figure includes commercial property)
AND anyone who cab afford to be a first-time buyer thinks property’s going to get cheaper before it gets dearer, so what’s the rush?
Posted by: John Page | August 5th, 2008 at 3:57 pm | Report this commentisn’t this leak just released to divert attention from the £3bn write off to N Rock ???
Posted by: J McGee | August 5th, 2008 at 4:01 pm | Report this commentI do not think the stamp duty wipe off policy will boost the property market.
Posted by: Jinyu song | August 5th, 2008 at 4:45 pm | Report this commentThe basic problem of credit crunch still remain, buyer still can not get cheap loan, and probably will not get the loan at all.
But, on the other hand, we can see what they are trying to do there. All these days, the seems good news published out. I could not help thinking, what is behind it…
This speculation will freeze up the market until the details are announced. Who, in their right mind, will exchange until they know the policy details? Who will now reduce their price to sell knowing that buyers might soon have a little more cash to spend? Pity the desperate sellers who will now have less chance of selling until Darling makes his mind up. Screwing up the market like this is stupid.
Posted by: Charles | August 5th, 2008 at 4:56 pm | Report this commentIt won’t help especially if the buyer has to pay it back in anything like a reasonable time.
I’d say that the reason why no amount of kick-starting will actually start the market again is simple: which first-time buyer will buy knowing that prices still have some way to drop? Who want a heck of a mortgage around their necks for the next 30 years?
When prices fall so that people can afford to borrow according to the old rules, they’ll buy. Any bank offering 100% mortgages and other imprudent tricks will lose my shareholding toute suite!
Posted by: Dane Aubrun | August 5th, 2008 at 5:09 pm | Report this commentSure on a £180k house the saving is small but on a £300k house in London it is a saving (delayed spend) of about £9,000…that is material! It may soften the blow by getting some first time buyers who find a “good” buy to transact and set off a few of the property chains that are currently stagnating.
The problem is it is reactive, there were a lot of people forecasting this downturn for years before it happened and our government (and banks)sat back…raked in our money and didnt give a monkeys that prices were spiraling out of control, and reach of first time buyers.
I was one of those that refused to buy (in the UK) while everyone laughed at my stupidity …. now enjoy your negative equity I will be buying your house in about 1.5 years time for 75% of its current price
Posted by: Martin Tyler | August 5th, 2008 at 5:16 pm | Report this commentI agree, stamp duty is a token gesture - there are far deeper problems (excluding the funding crisis).
If you look at any new-build scheme I think you will find that the reason no one is buying these developments is that fundamentally, they are not attractive housing (and therefore comparatively overpriced):
- they have very small plots
- generally overlooked / built on top of each other
- all look the same etc.
Consider the two bed-flat market in the many towns outside of major conurbations - there is no demand for housing like this given the nature of business / employment in the local area (who wants to buy a flat for £125,000 when you can get a semi for the same money). People don’t need to be so close to the centre as business is typically more geographically dispersed in the areas.
We have oversupply of ‘commoditised’ housing and pointless flats in areas where flats are not necessary, which fundamentally are not attractive. In order to sell this housing stock (especially flats) it has to offer value and a reasonable discount (directly attributable to the quality and size of the underlying plot - i.e. you get no plot with a flat and a postage stamp with a new build).
People would rather wait and try to get a 1930-1950’s house with a larger plot, better build for the current price of a faceless box (in a few years).
These new boxes (in a stagnant market) can only go down in value in the short term as, once lived in, the house lose their main selling factor - that its brand spanking new! 2 years after buying a box, if you were to sell it, you are competing with truely ‘new’ houses at the same price so have to offer a discount if you want to sell. Why bother?
Also, many of the daft get rich quick buy 2 let investors who only haggled 5% of new builds a year ago because they thought that propoerty was an easy way to create a pension or that property development was simply about landscaping the garden after buying on the first phase, have been shaken out of the market. Those which remain will help to keep rents (and yields) relatively low as they can’t risk the property being empty. The continued relative value of rents will help to keep people on the sidelines.
HIP’s - what a waste of time! Clear these out.
In summary, we have an oversupply of unattractive housing (especially flats) which are significantly overpriced.
Posted by: RM | August 5th, 2008 at 5:25 pm | Report this commentThe average income in the UK is less £24000 per annum even 5 (five) times this will not buying anything not close to an abandoned coal mine. Most hovels masquerading as property in this country cost at least £160000 if near a tar pit and a lot more if you dream of breathing polluted London air. Stamp duty does not mean squat to a young head who is barely taking home £20,000. Most people in this country take home about that, (meaning first time buyers) The government is a rogue operation, they are merely front for global coporations and banks they can’t help anyone who is not part of these cabal.The property industry is comatose,anything they try is to try and offload toxic waste -mortgages on the blind- collect the funds they manufactured on willing slaves and break for the borders.The cabal that run this government and those around the world has,have,had never cared for the populace.Pretending otherwise is what democrazy is all about
Posted by: chunfla Burlbe | August 5th, 2008 at 7:11 pm | Report this comment… also I want to add that they really do not seems to know what they are doing or what they want! Buyers and sellers need to listen to/watch the econonomy not politicians who are happy to spend billions of my and your money to bail out Northern Rock but have to think over the summer(and freeze the market even further) before “giving” those who make the economy, the taxpayer, a token!
Posted by: Sam Beny | August 5th, 2008 at 8:18 pm | Report this commentMr. Brown – the dark knight?
The headline “Brown considering stamp duty freeze” will no doubt prove to be a huge factor in further declines in the number of first-time buyers, even if banks are willing to finance – unless the headline becomes “Brown freezes stamp duty for first-time buyers” in the very near future.
In a society driven by fear and greed, and market driven by information, one needs to be very careful when “releasing” such statements.
Lets look at the headline more closely and analyse its implications. If Mr. Brown is CONSIDERING a stamp duty freeze, what would I do as a first-time buyer? – I would wait and see until he CONSIDERS and concludes. So in a rational world, I as a first-time buyer will not buy from the time(t0) he announces that he is CONSIDERING to the time(t1) a final definitive announcement on it has been made. Therefore no/very little first-time buying activity should be expected in that period(t0 - t1).
It can be inferred that the damage to the housing market is inversely proportional to the period(t0 – t1). So if I was Mr. Brown I would minimize damage by naming t1(the day when an official announcement will be made about a stamp duty freeze or no freeze) as soon as possible. Keeping people in the “dark” on such matters will have catastrophic chain-reaction consequences.
Posted by: S Fernando | August 6th, 2008 at 11:20 am | Report this commentCORRECTION: Mr. Brown – the dark knight?
In the last paragraph:
Posted by: S Fernando | August 6th, 2008 at 12:31 pm | Report this commentIt can be inferred that the damage to the housing market is directly proportional to the period(t0 – t1), and not inversely.
Freezing the stamp duty will not kick start the housing market because the stamp duty is a tiny fraction of the cost of a house. The thing that would help kick start the housing market is if interest rates drop.
Posted by: Holiday James | August 20th, 2008 at 12:26 pm | Report this comment[…] people will wait to see if it actually happens before deciding whether to buy or sell, even though the effect may not be particularly significant anyway. At any rate, since no decision has been forthcoming, it is more like injecting a […]
Posted by: Stamp duty and the housing market « Blog of small things | August 26th, 2008 at 1:57 pm | Report this comment