Property industry prey on first time buyers

An unusual alliance of property professionals has got together to lobby Government to extend the current arrangements on Stamp Duty that is due to end at New Year. The 1808 Group made up of house builders, mortgage lenders and estate agents is urging the Government to take a long hard look at Stamp Duty which, they say, hobbles the housing market. Whilst the tax itself is overdue for reform, there is something rather seedy about some who seem to want to extend the holiday just so that more first time buyers can be suckered into the market.

In September last year the Chancellor raised the threshold at which Stamp Duty was due from £125,000 to £175,000 for a year. Earlier this year, with sales just a trickle and prices at the time around 10% down, this was extended to the end of 2009.

The 1808 Group, named after the year in which property was added to the list of assets attracting Stamp Duty thinks that unless this ‘holiday’ is extended the market will continue to suffer. Choosing to ignore the fact that house prices have recovered and house builders like Barrett say that they are now building more homes, they say that they “believe that Stamp Duty is an anachronistic tax which in it’s current form is preventing recovery in the housing sector”.

They do have a point. The tax is not progressive, it’s levied in slabs with 1% currently payable by purchasers on property from £175,000 up to £250,000, 3% from there up to £500,000 and 4% on the whole price paid on any property over half a million pounds.

As a revenue stream for the Government Stamp Duty raised about £2.4bn in 2008, down from £5.2bn the year before. By Christmas last year, the ‘holiday’ that the Chancellor had granted by raising the threshold from £125,000 for four months had cost the Exchequer about £46m.

I have been a long-time supporter of overhauling the way that the tax is implemented and share the 1808 view that if you want to raise tax when properties are bought and sold then a progressive tax that applies steadily all the way up would be much fairer and less likely to distort the market. You can imagine just how few homes sell for £176,000, £251,000 or indeed £500,001…

But the alliance of groups who derive their livelihood from building, selling and funding houses has I believe a darker motive. Few if any of them actually pay the tax. What they want to see is more turnover. Agents and lenders earn more if turnover increases and builders obviously benefit when they can build more homes. The Director General of the Building Societies Association, Adrian Coles implores the Government to provide “a fairer and transparent system …. that doesn’t discriminate against young and first time buyers and promotes an effective housing market”.

First time buyers have virtually deserted the market in recent years with the number in 2008 two thirds down on the number a decade ago. But according to the Council of Mortgage Lenders the amount that first time buyers are spending of their income on interest is down from 19.8% to 15.1% this year. This is because base rates at 0.5% are at record lows despite alleged profiteering by some lenders who have been accused of charging closer to 4%. If or rather when rates return to their higher historic levels, we are bound to see the proportion of income spent on interest will rise in sympathy.

If a first time buyer is going to decide to take the plunge if they don’t have to stump up the 1% Duty then aren’t they too close to margin? They shouldn’t be buying in the first place. Interest rates are bound to rise eventually and by a good deal more than 1% I expect. Prices could fall next year – indeed Savills predicts that their market might fall by over 6% and borrowers currently have to find 25% as a deposit or put another way over £35k out of taxed income!

Urging vulnerable first time buyers to commit to their largest purchase when a 1% cost could make all the difference is irresponsible. If the virgin home buyer miscalculates their sums then they risk loosing their home. House builders and mortgage lenders may want to stimulate turnover but they could do this by cutting the margins that are being charged over base rates, reducing the deposit required to get a mortgage or indeed by trimming the asking prices of the finished products in the first place. House prices have risen by a factor of three over the past decade. If they were to fall by 10% in 2010 they would still show a better return than the stock market has over the past ten years and they wouldn’t be mortgaging the next generation to their own headstones.

If a group like 1808 can get together to try and change something then let’s make life fairer for all and work towards a progressive tax but lets not hear the bleating of businessmen who want to sell more of their products and services to those whose homes will be at risk if they discover that they can’t keep up their repayments.