Stamp duty change shows Osborne is addicted to rising house prices
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Version 0 of 1. George Osborne revealed yet again that he is addicted to rising house prices. When the economy was tanking, he pumped it back up by Funding for Lending (cheap mortgages) and Help to Buy (easier loans). But in recent months the property market has been showing signs of flagging – and possibly going stone cold ahead of the election. So what is the centrepiece of the autumn statement? A plan to pump the market back up with an £800m cut in stamp duty. It should come as no surprise that estate agents and mortgage brokers are busily issuing statements wholeheartedly supporting his “bold” move. Within seconds of the announcement, shares in giant property website Rightmove bounced. The chancellor said the cut should be welcomed as a simplification to a deeply unfair and unpopular “slab” system. The old system (it expired at midnight) created bizarre anomalies in the market, where someone paying £250,000 for a home was liable for £2,500 in stamp duty, while someone paying £275,000 was being asked to fork out £8,250. Making stamp duty a slope, rather than a cliff edge, is clearly desirable. We can now expect many more houses to come on to the market in the £255,000-£265,000 price bracket. But Osborne could have chosen to reform stamp duty while leaving the tax taken as revenue-neutral. Instead that person paying £275,000 for a house will now face a bill of just £3,750 for stamp duty - a cut of £4,500. Hurrah for hard-pressed home buyers? Maybe for a day or two - until the ugly dynamics of the market assert themselves. A buyer who on Wednesday could afford a maximum of £275,000 will on Thursday be able to afford £280,000. Inevitably, they will bid more to secure a property - so the tax cut translates almost instantly into a house price rise. As Prof Michael Ben-Gad of City University said immediately after the stamp duty cut was announced: “The short-run impact is likely to be a rise in house prices, because the immediate supply of housing is inelastic and sellers will pocket most of the tax reduction.” But surely first-time buyers should welcome these cuts? Not so. Priced Out, the campaign group representing young buyers excluded from the market agrees with Ben-Gad. Its spokesman, Duncan Stott, said: “There is a real risk that today’s stamp duty changes will just end up inflating house prices. A house sold at the current average price of £273,000 will now be liable for £4,540 less stamp duty, but since sellers want to maximise the sale price of their property, they will expect buyers to pay this money to the house instead. You have to wonder whether George Osborne is trying to stoke up house prices in advance of next year’s general election.” In London, the picture is more complex. Tellingly, estate agency group Foxtons saw its share price fall quite hard after Osborne sat down. Why? Because so many of the properties it sells are in the bracket where the slope of stamp duty actually steepens. Wide areas of north and south-west London have street after street where relatively “normal” houses sell for more than £1m. The tax due on a £1.5m home will soar from £75,000 to £93,750. Osborne may want to steer clear of Myleene Klass after the grilling she gave Ed Miliband. The £2m homes she worries about will now see the stamp duty bill on sale jump from £100,000 to £153,750. But in Osborne’s political calculations, the voters to worry about are not in Kensington & Chelsea but further east in the likes of Rochester, where the average house price is £193,000 – and where the average buyer will see their tax bill chopped from £1,930 to £1,360. |