Fears for housing market raised over end of stamp duty holilday

Tuesday, 17 November 2009 12:01

The end of the government imposed stamp duty holiday period could have a detrimental effect on the housing market hampering recovery, research from the Royal Institution for Chartered Surveyors (Rics) claims.

With the current holiday period due to come to an end on 31st December 2009, Rics says regional housing markets that are already lagging behind in terms of their recovery could fall even further behind.

Fears of a double dip housing recession - where house prices fall, then initially recover only to fall again - have been growing in recent weeks as various house price monitors give conflicting reports about the state of the housing market.

A fortnight ago Halifax said house prices rose by 1.2% in October, the fourth month in a row in which prices had increased.

But at the weekend property website Findaproperty signalled the end of the seven month mini-boom in the property market and warned of a "growing risk of a double-dip housing recession."

It said that prices fell 0.5% month-on-month.

Only last week Rics said that a shortage of properties, combined with cheap money, had sparked a surge in gazumping.

Today Rics says more surveyors in the West and East Midlands, Wales and Scotland believe they will see a drop in activity in 2010 following the end of the stamp duty holiday for properties priced between £125,000 and £175,000 at the end of the year.

Moreover, more surveyors in Wales and the East Midlands said they were still seeing price falls rather than rises in the last housing market survey.

Meanwhile, in the West Midlands, only 3% more surveyors saw prices rising in October.

Overall however, the majority of surveyors are not expecting the end of the stamp duty holiday to have a distorting effect on the housing market despite the benefit it has provided first-time buyers.

Unsurprisingly, those working in London and the South East say the stamp duty holiday has had little impact on the number of houses on the property market. They also believe the return of the old tax regime will not lead to a drop in activity once it returns.

However, this is more a reflection on the fact that the holiday has had limited impact in these regions, Rics said, as the average house price is well above that of the stamp duty threshold.

Similarly in the North, where the average price is well below the threshold at £116,051, there is less concern about the impact of the end of the stamp duty holiday.

The regions that are most concerned about the impact are those whose average prices sit well within the margins that are directly affected by the holiday. These are the East Midlands (£133,973), the West Midlands (£142,969), Wales (£134,690) and Scotland (£140,175).

Simon Rubinsohn, RICS chief economist said: "At the time of its introduction, we did question how great an impact this policy would have and judging by the fact that only surveyors in certain parts of the country are particularly concerned about the ending of the holiday, it could be said that some areas of the UK hardly even noticed the change.

"However the additional transaction cost is still a worry to many, particularly first-time buyers, and is a threat to the market in the areas of the country that are still seeing a weak price environment.

"A return to the status quo will be of benefit to no one, and as such RICS believes that rather than simply reverting back to the old structure for stamp duty, the imminent change provides an opportunity for the government to introduce a wholesale restructuring of the tax.
"Specifically Rics favours moving from the current slab structure to a marginal system with no homebuyer paying anything on the first £150,000 of their new home."

The Association of Mortgage Intermediaries (AMI) has also thrown its support behind the Rics campaign to reform stamp duty.

The trade association, which represents mortgage brokers, said it was also calling on the chancellor-of-the-exchequer to immediately extend the current stamp duty holiday until the housing market has recovered.

It also called on Alistair Darling to embark on a fundamental review which would re-examine the current thresholds ensuring the impact on both residential and commercial properties was taken into account.

Robert Sinclair, AMI director, said: "It is rare that the breadth of our industry comes together with such consensus on an issue. But the current stamp duty regime is distorting the market to such an extent that we feel compelled to speak out.

"AMI is fully committed to supporting this industry campaign to reform the regime. We implore the government to not only listen but to act in support of our request for change to this damaging tax."

The chancellor will deliver his pre-Budget report on 9th December.

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