End of stamp duty 'holiday' will hit housing in poorest regions hardest

Published on Monday 16 November 2009 21:29

THE end of the government's stamp duty holiday will hit the housing market hardest in regions that are already failing to benefit from the recovery.

The Royal Institution of Chartered Surveyors said the end of the stamp duty exemption on properties costing up to 175,000 could have a "detrimental effect" on the recovery in areas that were lagging behind the rest of the country.

It said surveyors in Scotland, the West Midlands, East Midlands and Wales were all expecting a drop in activity when the level at which the tax kicks in returns to 125,000 at the end of the year. The average property price in all of these nations and regions falls between the current stamp duty threshold of 175,000 and the old one of 125,000. But RICS warned that many regions were already failing to benefit from the recovery, with more surveyors still reporting house-price falls than those who were seeing rises.

Overall, the majority of chartered surveyors did not think the end of the stamp duty holiday would have a distorting effect. Unsurprisingly, those in London and the south-east of England overwhelmingly thought the end of the holiday would not have an impact on the market, probably because the exemption has had little benefit in these regions, as the average house price is well above the temporary threshold.

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 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."

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.

It is also calling for the tax not to be charged on the first 150,000 of a property's price, regardless of the home's value.

Members of the property and mortgage industries have long called on the government for a fairer system of stamp duty, where fixed thresholds are replaced with a more fluid set of charges – so preventing artificial price levels at each threshold.

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.

Any changes – or an extension to the stamp duty holiday – will come in the Chancellor's pre-Budget report.