Stamp Duty Decision Maybe Slowing House Sales
Reports that the government is considering changes to stamp duty are causing disarray and delays in the housing market, the BBC has learned.
Among potential measures to boost the housing market could be allowing buyers to defer the payment of stamp duty.
But readers of the BBC News website said that the uncertainty had caused problems for their transactions.
The government has denied that any proposals have been put forward at all, saying the stories are conjecture.
‘Backfired’
After having his property on the market for several months, Richard Bell was due to exchange contracts on his Windsor home on Friday.
But after reports appeared in the media of a possible stamp duty holiday, his buyer has asked to delay completion until the stamp duty situation is clarified.
He is angry at the way the government has handled the situation.
“Their crumb of comfort has backfired,” Mr Bell told BBC News. “It has stopped the sale in its tracks.”
“They really haven’t thought about the implications,” he said.
‘Killed off’
Chris O’Brien from Swansea said he thought the speculation would “kill-off” the housing market until the details of any changes were confirmed.
The stamp duty on the home he is due to exchange contracts on will be more than £8,000.
But he won’t now be signing on the dotted line until the government makes a decision one way or another.
“I don’t want to sign one day only to find that stamp duty has been abolished the next.
“The Chancellor needs to make a swift decision,” he said.
Going ahead
Mark Phillp and his fiance thought about delaying their home purchase until the situation was clearer.
They agreed to go ahead, but it was a difficult decision.
“We really didn’t know what to do,” Mr Phillp told BBC News.
“Do we hold off and risk losing the house or go for it and risk losing the £8,000 in stamp duty?”
They are now hoping that any announcement comes in the next fortnight before they exchange contracts.
The Conservatives have written to the Chancellor calling for an end to such doubt.
However a Treasury representative insisted that no decisions have been taken on changes to stamp duty.
“Recent news stories suggesting the government has put forward a proposal on stamp duty are simply wrong. These stories are based on speculation,” he said.
‘Clarity’
Estate Agents have been echoing the call from homebuyers and politicians for further information.
Peter Rollings, managing director of London-based Marsh and Parsons estate agents, said any further information would be helpful.
He said four househunters who came into one of their West London branches had told him they would hold off putting in any offers while the uncertainty persists.
“What we really need is some clarity,” Mr Rollings said.
He called on the government to at least confirm which price bracket any measures would apply to, in order to prevent the uncertainty infecting the whole market.
What is not clear yet is whether any ease of the stamp duty rules would apply just to the 1% band or to the higher rate bands as well.
Currently, people buying properties for between £125,000 and £250,000 pay 1% in stamp duty at the time of sale.
Those spending more than £250,000 pay 3%, while homes costing more than £500,000 incur a 4% rate.
There is a precedent for a suspension as the Conservatives temporarily suspended the tax on homes worth less than £250,000 during the 1991 recession.
End Of Mortgage Deals Could Mean Huge Hikes For Homeowners
A recent report has shown how many homeowners in the UK are set to be faced with crippling rises in their mortgage repayments as a result of their special mortgage deals, such as cheap fixed rate loans, coming to an end.
Once the mortgage deal expires, homeowners will either have to remortgage to find a more affordable deal or will have to move on to their lender’s standard variable rate (SVR). The SVR can be very expensive, but on the other hand finding an affordable mortgage elsewhere is becoming increasingly difficult.
Even if homeowners do find another mortgage deal to switch to, they will most likely have to pay expensive mortgage arrangement fees, which can run into thousands of pounds in some cases. Almost a million homeowners are expected to face mortgage repayment hikes of up to 40% if they have to switch to their lender’s SVR, and those set to be affected included younger homeowners who purchased their homes within the past couple of years and those that took out 100% mortgages.
One broker said that the situation was very difficult, stating: ‘In the old days, competitive mortgage rates were typically available to anybody with more than five% equity. Now to get the best rates you need 25% or more.’ Another said: ‘There is a growing number of borrowers for whom there is little choice. They will simply have to pay more.’
However, one official said that some may prefer to switch to their lender’s SVR, stating: ‘The advantage of the SVR is that there is no fee to pay - and with some fixed and discounted deals coming with fees of about £1,000 or more, it is easy to see why some borrowers prefer their lender’s SVR for now. The idea is that once a competitive fix or discount becomes available the borrower can then move on to that without paying a penalty or having to give any notice.’
Bank Mortgage Lending Falls By 20%
The British Bankers Association (BBA) said that in May, the number of new approvals for mortgages to home buyers fell to just 28,000.
This is a drop from 20% in just one month and 56% below May last year.
The BBA said the number of new approvals was the lowest since record began in 1997 and warned that the market remains weak.
“Measures were lower mortgage activity in May as a result of tighter lending criteria and economic pressures on households,” said David Dooks, BBA.
“Only remortgaging business is the conclusion, where people need or want to take advantage of agreements with other lenders,” he added.
BBA members represent about two-thirds of total mortgage lending in the UK.
Contraction
The UK housing market is undergoing a rapid and unprecedented decline in activity and sales.
The supply of mortgage funds, which largely comes from lenders in international financial markets, has been largely turned off due to the continued credit crunch that began almost a year ago.
Many participants in the real estate market, as house builders, mortgage lenders, house builders, realtors and experts have been telling the same story, with widespread predictions that sales will fall between 35% and 45% in the course of 2008.
The effect has been that housing prices have fallen in recent months, with many experts now expect a fall of over 10% at the end of the year.
Mortgage approvals are widely seen as a good indicator of sales in the coming months.
The BBA figures suggest the most dramatic contraction in loans so far.
However, their data does not include the construction of societies. Figures for all lenders will be published by the Bank of England on June 30.
‘Deep correction’
Howard Archer, chief UK and European economist at Global Insight, said: “More data on the housing market, much more disturbing news that raise concern that we are in for a long, deep correction in the market housing.
“The BBA data graphically emphasized that the activity in the housing market is being throttled by stretched affordability and tight lending conditions.
“Very low activity in the housing market seems certain to feed through to further depress already significantly weaken house prices.