Buyers face 'punitive' stamp duty

Estate agentsTwo in five potential home buyers will face paying at least £7,500 in "punitive" stamp duty costs by 2018 as the property market recovers, a report has warned.

As house prices pick up, four out of every five homes sold in 2012-13 in England and Wales will be subject to the stamp duty land tax within five years, research for the TaxPayers' Alliance found.
It warned that 40% of homes sold by this time will be subject to stamp duty of 3% or more, leaving buyers with a bill of £7,500 or more.

Some 99% of homes in London will be liable for stamp duty in five years' time and in the North West this figure will be three in five, the pressure group warned.

It predicts the East Midlands will see the fastest increase in the number of homes liable for stamp duty, from around half to just over seven in 10 by 2018.

Meanwhile, three in five homes in the South East and one in six homes in Wales will be subject to stamp duty rates of 3% or higher by 2018, the research found.

The TaxPayers' Alliance recently launched a Stamp Out Stamp Duty campaign calling for a cut in the levy, which raised £4 billion for the Treasury in 2012/13.

Its findings are based on property price growth forecasts over the next five years by Savills Research, using Land Registry sales figures as a base.

Sales of homes are free of stamp duty up to the value of £ 125,000 and attract a 1% tax above this level and up to £250,000.

But rising house prices as the housing market gathers pace mean that more purchasers face paying at the higher rates of 3% applied to homes worth over £250,000 to £500,000, 4% on those valued at over £500,000 up to £1 million, 5% on those over £1 million to £2 million and 7% beyond that point.

Three in 10 homes will have moved up into another stamp duty bracket in five year's time, the report predicted.

Stamp duty is imposed on the total value of the property rather than just the portion of the price which is above the threshold. This means families buying a home for between £250,000 and £500,000 pay between £7,500 and £15,000.

The findings come at a time when the housing market has been showing a strong pick-up in activity, following Government schemes such as Funding for Lending and Help to Buy, which have made it easier to get access to a mortgage.

Lenders have been reporting a surge in first-time buyers flooding back into the market, which has helped to free up some housing chains. The strengthened demand, at a time when the volume of houses for sale on the market is still in relatively short supply, has led to a stronger-than-expected rise in house prices this year so far.

Matthew Sinclair, chief executive of the TaxPayers' Alliance, said: "As the property market recovers, more and more people will be sucked into paying punitive rates of stamp duty and it will be more expensive to move than ever.

"High stamp duty rates stop young people buying a home and starting a family, discourage elderly people from downsizing and make it harder to move to a new place for a new job. The Government urgently needs to cut stamp duty and ease the burden before the situation gets even worse."

A recent report from Halifax found that a growing proportion of first-time buyers found themselves having to pay stamp duty recently on top of raising funds for a deposit this year.

Halifax found that more than half (51%) of people taking their first step on the property ladder in the first half of this year bought homes which were over the £125,000 threshold, up from 44% a year ago.

Campaign group the Homeowners Alliance recently released a report warning that the housing market is in danger of being "choked" by soaring stamp duty costs.

It argued that the ''ramping up'' of stamp duty costs by successive governments had been a major factor behind a sharp drop-off in home ownership rates.

The top ten DIY projects: are they worth it?
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Buyers face 'punitive' stamp duty

Of course with all these things, the value it adds depends on the property you have to start with, and the kinds of improvements you make, but Which? estimates the cost of a new kitchen at £8,000 and HSBC calculates the added value to your property at £4,500 - which is a clear loss.

This has been done by 41% of people in the last three years, and 29% of people plan it in the next three. It's cheaper than a kitchen, and Which? estimates the cost at £3,000. This is roughly the same value that HSBC says it will add to your property - so you'll break-even.

This has been installed by 31% of us in the last three years, and 15% plan it in the next three. Installing central heating is a disruptive job, and according to WhatPrice it will cost you around £3,235. However, this is the first of the top ten to actually pay off. Property expert Phil Spencer says it will add £5,000 to the value.

Some 18% have added one in the last three years, and 30% will in the next three. This is another huge job, but with more people struggling to move and deciding to improve instead, it's increasingly popular. The amount it costs will depend on an enormous number of things, from the area you have to work with, to the size of the extension. However, assuming you add a single room you could spend around £20,000. HSBC estimates it will add around £15,500 to the value of the property, so you are unlikely to gain as much as you spend.

17% have done one of these in the last three years, and 20% will in the next three. This doesn't have to cost more than a couple of hundred pounds, but according to a survey from Halifax a few years ago it costs an average of £850 and adds almost £1,500 to the value. This is the second financial sound project in the list.

11% of us have knocked rooms through in the last three years and 8% will in the next three. If you're creating more usable space, then buyers won't mind you are reducing the number of rooms. If it's a supporting wall you can end up spending around £1,500, whereas a non-load-bearing wall should be doable in a day with a laborour and a plasterer for a couple of hundred pounds. It's unlikely to specifically add value though.

8% have put them in over the last three years, and 8% plan to in the next three. A solar panel costs about £6,500. It's definitely not going to add value to your property. However, it can pay off. With a feed-in-tariff you can save yourself £600 a year in heating, and can sell up to £450 back to the grid. The lifespan of the panel should be 20 years, so you'll break even after six and a half years and start making money. It's the third wise financial move here.

6% have done this in the last three years and 11% plan to in the next three. According to HSBC it adds the most value - at an average of £16,000. However, at a cost of £20,000 or more, it won't make you money.

4% of people have added one in the last three years and 7% plan to in the next three. As with a similar extension, you're likely to spend £20,000 and add £15,000 of value. So it only makes sense if your family is too big for the house.

2% have converted the cellar in the last three years, and 4% plan to in the next three. This is not a great way to see a return on your money - unless you live in the kind of area where you are absolutely out of any other options when it comes to making more space. It's not cheap - starting at £10,000 for simple waterproofing and finishing, to £50,000 for more intensive work. It will typically add £20,000 to the property.


A Treasury spokeswoman said: "This Government is determined to support aspiring home-buyers in taking their next step on the housing ladder.

"That's why, in this year's Budget, we introduced the Help to Buy programme to increase the supply of low-deposit mortgages to credit-worthy buyers, increase the supply of new housing and contribute to economic growth.

"At a time when we are focused on reducing the deficit, cutting stamp duty land tax would create a significant cost to the Exchequer and this would have to be met through increasing other taxes.

"We believe there are other more effective ways to support the housing market, such as improving access to finance."

The people who affect house prices
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Buyers face 'punitive' stamp duty

They have the power to push a price higher, depending on how many other people are in the running for a home and how liberal they want to be with the truth to the buyers. In some cases, they can also do more harm than good by initially overvaluing a property. The worst case scenario is the home eventually sells for less than it would have done had it been priced realistically in the first place.

Sometimes a quick-moving solicitor can be the difference between getting the home at the price you want and getting into a bidding war or missing out entirely. If the buyer needs a quick sale, they're more likely to do a deal with someone who has a flexible solicitor who can push through the sale so it suits them.

Research by Halifax concluded that anti-social neighbours could take £31,000 off the price of an average home. If you’re selling, you should declare any problems you’ve had on a Seller’s Property Information Form, otherwise you could face a claim later on.

While an increase in Council Tax might not be too much of a deterrent to a potential buyer, plans to grant permission for new homes, a mobile phone mast or wind turbines could knock an asking price down. If you're a buyer, the local council should have details of any future planning applications and you can search them for a small fee.

A lot of traffic in an area obviously has an effect on air quality. Since 1997 each local authority in the UK has carried out studies of the air quality in its area. If an area falls below a national benchmark for air quality, it has to be declared an Air Quality Management Area (AQMA). Some residents of the Llandaff area of Cardiff expressed concern that it had become an AQMA due to an increase in traffic in the area. Whether this becomes a widespread issue remains to be seen.

Mortgage availability is a key driver of property prices. If no-one can take out a mortgage, then prices will stall and eventually fall. We've seen this happen in parts of the UK in recent years, as lenders tightened up their criteria following the credit crunch. Conversely, good mortgage availability will mean more people are competing for properties - to a seller's advantage if their home is desirable.

An outstanding local school can add around 8% to the value of a home, according to the Royal Institution of Chartered Surveyors. On the flipside, a not so good Ofsted report can take off a similar amount. If you’re concerned about a school’s performance, one way to get involved is to become a governor.

Initiatives such as the Help To Buy scheme have been credited with pushing house prices up. A buoyant economy with strong employment gives people the confidence to buy and leads to an upward shift in house prices, while rises in unemployment have the reverse effect. Planning restrictions, at both a national and local government level, affect the number of homes in a particular area.

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