Achieving Stamp Duty worth approval

Thursday 18th March 2010

By Michael White, chief executive of online mortgage advisers, Email Mortgages

There is much talk of housing affordability being at a seven-year high (Research by Zoopla), whereby the ‘average’ UK income earner can ostensibly afford to buy 58 per cent of all homes, up significantly in comparison to the property market peak in 2007, when just 34 per cent of homes were ‘affordable’.  According to these stats, the best year in the last decade for affordability was 2002 when the figure reached 66 per cent.  In 2010, as we emerge from the worst recession in living memory, we are again fast approaching that quite impressive figure which actually may seem a little bizarre.

Essentially, affordability rates have improved over the past couple of years as a result of lower mortgage rates and falling house prices.  This would seem to suggest it should be a good time to buy, especially if highly competitive mortgage fixed or indeed tracker rates can be locked in by the borrower.  But such improved affordability is only available for those with significant deposits of 40 per cent or more to take advantage of the very best deals available in the market. This very much excludes typical first time buyers.

Unfortunately, the archetypal first-time buyer in the current market will have needed to scrimp and save to get the minimum 10 per cent required deposit to fund their first property purchase and be required to borrow to the maximum amount, subject to income.  Also, let’s not forget the monies required to meet the various legal and moving costs involved.  Affordability is of course key to mortgage finance and first-time buyer’s ability to manage cash-flow, particularly in the initial years of a mortgage, is crucial as they attempt to successfully move from the first rung and gradually climb the property ownership ladder

Significantly, as an assist to affordability, the numbers of mortgage products has increased quite dramatically in the last year and rates are also declining as more competition enters the market among lenders with margins being reduced to the benefit of borrowers.  This needs to continue and we also need more new lenders to enter the market to further broaden the range and availability of such products.   But in the medium term it is unlikely that the larger deposit requirements, regardless of the number of lenders, will moderate which means the struggle of affordability generally and particularly for those with smaller deposits will continue unless there is some further Government intervention?

Next week’s Budget, especially with a General Election less than two months away, could well provide the perfect opportunity for the Government to draw its attention once again to Stamp Duty Land Tax (SDLT) and the considerable impact it continues to have in putting a block on a potential property transaction.  The additional transaction cost of Stamp Duty is still a worry to many, particularly first-time buyers.  I consider it a threat to the market in the areas of the country that are still seeing a weak price environment, regardless of the affordability statistics.  I would like to see a complete restructuring of this antiquated tax but acknowledge this is unlikely given where we are in the political spectrum and the need for the Government to hold on to whatever tax revenues it can at present to start controlling the massive deficit. 

At present if the purchase price is more than GBP 125,000, house purchasers pay between one per cent and four per cent SDLT of the whole purchase price.  So:
Up to - GBP 125,000                               0%
GBP 125,001 - £250,000                         1%
GBP 250,001 - £500,000                         3%
GBP 500,000+                                       4%

Ideally, the current ’slab’ system should be completely abolished and a new system introduced under which the higher rates are only charged on the proportion of a property’s price that is over the various thresholds.  If a complete restructuring is not possible then I would suggest the SDLT commencement figure of GBP 125,000 is at least doubled to GBP 250,000 with a new tiered structure:
Up to GBP 250,000             0%
GBP 250,001-£500,000       2%.
GBP 500,00 -£750,000        4%
GBP 750,000+                    6%

This would be much fairer and certainly of great assistance as we try to emerge from the overhanging effects of the recession.  It would also represent a great boost to positive sentiment which I would argue is key to a successful consumer-led recovery for the UK. 

At present SDLT only contrives to distort the market, particularly at the levels of the threshold where it creates artificial barriers and obstacles to ongoing purchases.  The housing and mortgage market certainly does not need this at present and therefore one would hope any future Government, whatever political persuasion, would have the necessary gumption and (dare I say it) majority in the Commons to be able to right this wrong.  Given the daily opinion polls though one must believe that we are heading for a period of greater uncertainty come the morning of May 7th rather than a focused Government which has the mandate to introduce some truly needed measures.

Michael White is both founder and chief executive of online mortgage advisers, Email Mortgages.com. Email Mortgages was established in 2008 and is a mortgage advisory practice providing consumers with tailored fee-free advice online via email.  Michael has been working in financial services for over 30 years and been involved in a number of new business start-ups including Chase Manhattan Homeloans, Legal & General Mortgage Services and Kensington Mortgage Company.  His last job prior to Email Mortgages was as founding director of the lender London Mortgage Company, established in 2001 and sold to Lehman Brothers in 2006.