Stamp duty reform: more fiddle than fix

http://www.theguardian.com/money/blog/2014/dec/06/stamp-duty-reform-more-fiddle-than-fix

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The estate agent was quite adamant the day she came to value my flat. “In a normal market this would go for £260,000 or so. But no one will pay that because of stamp duty, so the truth is you won’t get anyone offering a penny over £250,000. We could try asking £275,000 and see if someone bites at around £260-£270, but I’m not optimistic.” She was right. After a month I had to accept that the stamp duty cliff was just too tough to climb, and I settled at £250,000.

This week’s overhaul of stamp duty was long overdue and will be hugely popular. Each time stamp duty has been raised in recent budgets, the anomalies in pricing have got worse. Making the tax more of a slope than a cliff was a move that should have been taken long ago.

But before we thank George Osborne for this welcome reform, let’s not pretend it’s going to help the hard-pressed first-time buyer. What would I have done with my flat were there no stamp duty cliff at £250,000? I would have put it on at £260,000 and probably settled at something around £255,000. So I, the existing property owner, would have pocketed £5,000 extra. But it would not have stayed in my pocket for long, as I’d use that £5,000 to be able to bid that bit more for the next place up the so-called ladder. My buyer would be worse off and in reality I’d be no better off.

I checked a few properties that have been added to Rightmove since the chancellor’s announcement, and the evidence of re-pricing upwards is already beginning to emerge. A nice four-bedder in Oldham has just gone on for £259,950. The agents, Ryder & Dutton, told me that previously they might have struggled to sell at that price, but now they’re confident they’ll get the full amount. It was the same story for a similar £255,000 home in Liverpool, added to Rightmove the day after stamp duty was changed. The agents, Davis Beyga, said they are now far more optimistic it will sell at or near asking price.

The greater issue with Osborne’s stamp duty reform is not that he’s ironed out the anomalies, but that he has used the occasion to pump lots more money into the property market – an £800m giveaway that means stamp duty is reduced on nearly every sale up to £937,500.

Surely one lesson we have learned about the British property market, is that every time more money is made available for purchasers in a country with inelastic supply, all that happens is that prices rise. Osborne knows this, so this tax cut is a cynical ploy to revive a market that looked dangerously (to him) like it was cooling just ahead of an election. In the past he has boosted the market with Funding for Lending, then Help to Buy, and the stamp duty cut is just the latest adrenaline fix. To put it into perspective, Wednesday’s £800m injection into the property market is equal to nearly one-fifth of the total the government spends on unemployment benefit.

A nurse we spoke to, Katherine Roberts, said she has to go to bed early just to keep warm, such is the financial pressure she is under. She summed up what many people would conclude about Osborne’s speech this week – there was nothing in it for her. That said, it was good news for someone buying a £700,000 home (£3,250 off the stamp duty bill), taking the family to the Bahamas (£213 off the airfare) and whose parents have lots of money in their pension pot (new inheritance tax giveaways). All in it together?