Stamp Duty up 10-fold since mid 90’s

Robyn Hall

May 29, 2013

Average Stamp Duty paid on buying a home has jumped from £532 in 1995/6 to £5957 in 2011/12.

And in London, the average amount of Stamp Duty paid by homebuyers has rocketed to £17,529.

Stamp Duty has risen 7.1 times faster than inflation, 6.5 times faster than average earnings and 4.6 times faster than house prices since 1995/6.

And in a further blow to the housing market today it is now taking far longer for homeowners to save for Stamp Duty.

Average Stamp Duty paid is now equivalent to 11 weeks average earnings, up from eight days average earnings in 1995/6

The government forecasts it will make as much money taxing people buying their homes as it will from the “sin taxes” on alcohol and tobacco by 2017/18. A policy that has been slammed as being completely inconsistent with its proclaimed aim of helping homeowners and discouraging smoking and drinking.

On average, home buyers now have to hand over 3.7% of the price of their new home to the government. And more house buyers pay Stamp Duty at 3% or more than the basic rate of 1%.

The astonishing impact of stamp duty on homeowners and the housing market is revealed by a new report by the HomeOwners Alliance – Stamping on Aspiration: the real cost of stamp duty.

Stamp Duty is now so high that it is making it more difficult for first time buyers to get onto the property ladder and deterring homeowners from moving. Someone buying a £250,000 home with a 95% mortgage will now have to give nearly 40% of the money they have to save to the government. The upfront repeated ramping up of Stamp Duty by successive governments since 1997 is a major contributor to the decline of homeownership in the UK since 2002.

Homeowners have been hit by a “quadruple whammy” of escalating stamp duty rates, new stamp duty bands, frozen thresholds and rising house prices. Since 1997 – when the government decided to start hiking up the home tax – the number of stamp duty bands has increased from 1 to 5, and the highest rate of stamp duty has increased from 1% to 7%.

The government has designed the system so that even small increases in house prices lead to homebuyers having to pay dramatically higher tax.

Stamp Duty has gone from a tax that most homebuyers don’t pay to one that most have to pay. In 1992/3, only 37% of properties were subject to stamp duty, but now 54% are. Rather than paying many thousands of pounds to the government for the privilege of moving home, homeowners are deciding to build extensions, dig out basements or convert attics.

Paula Higgins, chief executive of the HomeOwners Alliance, said: “The housing market is being choked by the rising cost of Stamp Duty.

“The overwhelming majority of people want to own their own home and the government says it wants to help them.

“But the reality is that its “home tax” is taxing their aspirations to death.

“With homeownership in historic decline – depriving 5 million people of the dream of owning the roof over their head – the government should not be looking to homebuyers to fill its deficits.

“It is ludicrous that by its own forecasts the government is expecting to get as much money from its home tax than it is from the sin taxes on alcohol and tobacco.

“In earlier times, people avoided property taxes by building fake windows or making the first floor bigger than the ground floor – now they are doing it by digging out their basements.”

The HomeOwners Alliance makes a number of recommendations to fundamentally reform stamp duty, including increasing it for those buying buy-to-let properties and second homes, to pay for reductions in those just buying a home to live in. It also calls for the thresholds in stamp duty to be raised annually in line with house prices.

Higgins added: “It is very unfair that ordinary people pay the same tax to buy the roof over their head as investors do when expanding their property empire, or when people buy holiday homes they use only a few weeks of the year.

“The government must end the reduced rates and exemptions for buy to let landlords and second homeowners, and use it to slash the tax on first time and other ordinary homebuyers.”

Ben Thompson, managing director of Legal & General Mortgage Club, said: “Throughout the early 2000s, increases in Stamp Duty went largely unnoticed as levies were paid from rising equity.

“As house prices have reduced, this is no longer the case. The sharp rises we saw in Stamp Duty over 10 years ago are now directly causing the market to freeze.

“Because of this, since the downturn, Stamp Duty has become a prohibitive influence on the housing market. The level of fees required for second steppers to move home is near impossible to save; especially as household disposable income has suffered over recent years.

“During the Stamp Duty holiday that ended in March 2012, the CML revealed data which indicated a 7% jump in loans to FTBs during December 2011.

“The appetite is clearly out there for first time buyers to get onto the property ladder, especially as we have seen market confidence increase over recent months. Having said that, stimulus is still needed to ensure a full recovery is possible.

“We support the Homeowners Alliance’s call for an overhaul of the system and both the government and lenders need to work together to make homeownership more achievable for more people. A stamp duty break or increased fee thresholds would definitely be a step in the right direction.”

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