Stamp duty should be paid by sellers not buyers, says HSBC

A new and permanent reform of stamp duty would mean that the tax would be paid by sellers and not buyers.

The call for reform has come from HSBC which found that 85% of non home-owning young adults (18 to 34-years-old) want to own their own home, but only 19% of the 85% expect to be able to do so within the next five years.

And almost half – 45% of aspiring home-owners – do not ever expect to be able to purchase.

In its report, First Time Buyers: Roadblocks and Ways Forward, HSBC found that the younger, 18 to 24-year-old age group was the more optimistic.

Around 22% expect to purchase within five years. However, 21% do not expect ever to be able to purchase.

For each of the past three years there have been around 200,000 first-time buyers, according to the Council of Mortgage Lenders. This is less than half of the 400,000 to 500,000 of those recorded in more typical market conditions, before the credit crunch hit.

The key reasons holding aspiring home owners back from house purchase are:

69% cited “raising the required deposit”
59% cited “insufficient income to support the mortgage.”
27% said “concerns over unemployment”
12% said “concern over future falling house prices”

The current average FTB house price of £136,842 is 6.6 times a young single person’s average earnings of £20,654 (source: Nationwide Building Society and National Earnings Survey).

In order to afford a 90% LTV mortgage, a typical FTB would need to earn £30,800 – 49% higher than current average earnings for a single young adult.

Even then, a 10% deposit of £13,684 is equivalent to 42% of this higher annual income, a major impediment to home purchase without external financial assistance. It is therefore not surprising that 84% of young FTBs are buying with assistance, mostly from parents. This compares to 38% in 2005, according to the CML.

Stuart Beattie, HSBC’s head of mortgages, said: “Our study proves that the aspiration to be a home owner continues to be exceptionally strong. Over 80% of young non-home owners are aspiring to buy a home but are being prevented from doing so due to lack of affordable homes.

“The key to helping buyers back into the market is to help them obtain the cash deposit that responsible lenders require before granting a mortgage.

“To this end, both government and private sector interested parties need to come up with innovative schemes to help aspiring FTBs.”

The report says that government-supported initiatives have helped around 22,000 FTBs a year in each of the last three years.

HSBC is also suggesting that Stamp Duty should be applied to sales, not purchases. This would mean that FTBs would be excused it when the £250,000 stamp duty holiday ends next March.

The bank also suggests that 95% mortgage lending could be deemed prudent, if it could be backed by insurance to cover both lenders and borrowers.