Stamp duty change to compound low prices in worst hit areas

Published 18th Nov 2009

RICS warns that areas already suffering from house prices falls will face drop in activity when stamp duty threshold is lowered


The end of the temporary stamp duty holiday will hit the housing market hardest in areas where prices continue to slide, it was warned today.

The Royal Institution of Chartered Surveyors (RICS) said the end of the stamp duty exemption on properties costing between £125,000 to £175,000 at the end of December could have a “detrimental effect” on the recovery in areas that were lagging behind the rest of the country.

It said surveyors in the West Midlands, East Midlands, Wales and Scotland were all expecting there to be a drop in activity in the market when the level at which the tax kicks in returns to £125,000 at the end of this year.

The average property price in all of these regions falls between the current stamp duty threshold of £175,000 and the previous one of £125,000.

However, RICS warned that many of these regions were already failing to benefit from the recovery, with more surveyors in Wales and the East Midlands still reporting house price falls than those who were seeing rises. In the West Midlands, a balance of just 3 per cent of surveyors reported price rises.

The figures are in stark contrast to London, where 95 per cent of those surveyors questioned said that the cost of property was increasing during October.

Simon Rubinsohn, chief economist at RICS, said: “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.”

The group called on the Government to use the end of the stamp duty holiday as an opportunity to introduce a “wholesale restructuring” of the tax. It would like to see the current ’slab’ system 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.

Currently, properties valued above £175,000 pay one per cent on value of the property. Anything below this is exempt.

The next tier, for properties worth between £175,000 to £250,000 is charged at 2 per cent, followed by 3 per cent for properties valued at up to £500,000. Above this, the charge is 4 per cent. In all cases, the entire value of the property is used to calculate the tax.

RICS is calling for the tax not to be charged on the first £150,000 of a property’s price, regardless of the home’s value. A coalition of seven property groups, led by the National Association of Estate Agents and the Association of Residential Letting Agents, is also calling on the Government to reform stamp duty, which it claims is distorting the housing market.

Source: ' Times '

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