Will the new stamp duty threshold kickstart the property market?
Matt Hutchinson, director of research at spareroom.co.uk, believes the move is enough to kickstart the housing market, but Richard Morea, technical manager at mortgage broker London & Country, thinks it's too small to have an impact.
Yes says: Matt Hutchinson, director of research at Spareroom.co.uk
This latest stamp duty holiday will certainly be welcomed by first-time buyers. It's also a boost for the housing market in general as, without a steady flow of first-time buyers, the bottom end of the market stagnates, and this has a knock-on effect further up the chain.
A lack of good stock on estate agents' books has blighted the property market over the past 12 months and left many first-time buyers scrabbling for the few good properties being marketed.
First-time buyers are crucial if the property market is going to recover from two years of being in the doldrums, so this was a timely announcement and a major boost for homebuyers – who have felt abandoned by the profit-chasing banks.
The support will be welcomed across the industry, and more importantly will hopefully encourage sellers back into the market.
The rental market has suffered hand-in-hand with the residential property market. When property prices started to fall at alarming rates during 2008, it left a significant number of homeowners who bought at the top of the market caught in the negative equity trap.
Many of these homeowners turned to renting out their properties as a short-term solution until the property market recovered, saturating the lettings market and driving rents down.
However, this holiday will help some first-time buyers more than others. For those buyers who already have their deposits, this is a nice little bonus on completion.
And those who are likely to have saved enough money for a deposit in the next two years may well be able to purchase sooner as a result, or at least have the added incentive to start searching earlier.
No says: Richard Morea, technical manager at London & Country
The doubling of the stamp duty threshold for first-time buyers will be a welcome boost for some, but it is unlikely to have any impact on many.
With a maximum windfall of £2,500, borrowers in a position to buy now will be delighted, but those who are still struggling to raise the sort of deposit now required will not see it as any great incentive.
Nationwide's most recent house price index (April 2010) put the average property value for the UK at around £167,802, 10% below its peak of October 2007.
During this time lenders have gone from offering some of their most competitive deals up to 95% to demanding up to 40% deposits before you can have their best rates.
Most first-time buyers are unlikely to even look at these deals, knowing the deposit is beyond them, but in order to secure any mortgage at all they will usually need to find a 10% deposit – and often more.
In October 2007, a 5% deposit on the average house required savings of £9,300. A 10% deposit on today's average house price is £16,780, and if you want to get one of the better deals, you'll need to find over £24,000. Saving 1% on stamp duty won't bridge that gap.
First-time buyers who are lucky enough to find the deposit required, will then need to satisfy the tighter lending criteria.
Following the credit crunch, lenders have tightened their belts and now scrutinise borrowers more closely, so even the slightest blemish on a credit reference or a low credit score is enough to send the application crashing, especially at higher loan-to-value rates.
With house prices creeping upwards again, unless lenders do more for buyers with smaller deposits, the stamp duty window alone will not be the answer to their prayers.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
An unexpected one-off financial gain in cash or shares, generally when mutual building societies convert to stock market-quoted banks. Also windfall tax, a one-off tax imposed by government. The UK government applied such a measure in the Budget of July 1997 on the profits of privatised utilities companies.
The circumstances in which a property is worth less than the outstanding mortgage debt secured on it. Although it traps householders in their properties, the Council of Mortgage Lenders (CML) says there is no causal link between negative equity and mortgage repayment problems. At the depth of the last housing market recession in 1993, the CML estimated 1.5 million UK households had negative equity but most homeowners sat tight, continued to pay their mortgages and eventually recovered their equity position.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
Your credit score is a three-digit number (ranging from a low of 300 to a high of 850) calculated from the information in your credit report. Your credit score enables lenders to determine how much of a credit risk you are. Basically, a low credit score indicates you present a higher risk of defaulting on your debt obligations than someone with a high score. If you have a low credit score, any products you successfully apply for will carry a higher rate of interest commensurate with this risk.
A property chain is a line of buyers and sellers (the “links”) who are all simultaneously involved in linked property transactions. When one transaction falls through – for instance, someone can’t get a mortgage or simply withdraws their property from sale, the entire chain breaks and all the transactions are held up or even fail entirely.