Stamp duty holiday supports house price rise
October saw the highest rise in asking prices for six years as homeowners looked to take advantage of the final months of the stamp duty exemption.
There is currently a stamp duty holiday on property worth under £175,000, but this incentive ends at the end of the year – meaning only property worth less than £125,000 will be free of stamp duty. Rightmove, an online property portal, reports that of the 95,000 new properties coming onto the market last month, 22,000 were under the stamp duty threshold.
As a result the website says October saw a return to a ‘sellers’ market’ – highly unusual given the current climate of restricted mortgage borrowing.
“It’s a little bit crazy to have a sellers’ market given the time of year and the warnings of imminent fiscal austerity by all the main political parties,” says Miles Shipside, commercial director of Rightmove.
“Estate agents in the north as well as the south are reporting that quality properties are often selling within the week. Buyers are ready to pounce on new instructions and are willing to proceed as they believe prices have bottomed, and more are finding the ability to put down the larger deposits required to access the best mortgage deals.”
As a result, asking prices rose by 2.8% - or £6,188 - during October, bringing the average property to £230,184. On an annual basis, average asking prices are up by 0.2%.
The monthly rise is the biggest measured in any month since February 2008, when asking prices jumped by 3.2%, and is the largest rise seen in October for six years.
The housing market in London helped lead the rise, as property shortages combined with increased buyer demand saw asking prices hit an all-time high.
Despite the number of sellers looking to cash in on the stamp duty exemption, Rightmove says that, on a general basis, a lack of fresh stock has helped to support asking prices. October saw 19,890 come off the market, compared to 16,808 properties being put up for sale.
But concerns remain about how sustainable the rise really is. As confidence in the housing market returns, homeowners will become increasingly likely to sell – and such an influx of stock is likely to drown out any increase in demand from buyers, many of whom are still unable to get the mortgage funding they need.
Plus, political movements could also hinder the recovery. “Sellers in popular areas are back in the driving seat, though they should watch out for icy conditions ahead, as the market is likely to enter a pre-election freeze by spring next year,” says Shipside.
He points to several initatives. Firstly, the stamp duty and VAT holiday are both due to end come 1 January 2010. This will cause more problems for aspiring homeowners.
Secondly, the spring election is causing uncertainty, with the political parties divided over how best to help the housing market. The Conservative Party, for example, has said it plans to scrap home information packs if elected to power – this is likely to be a popular move for sellers, although it may mean they put off selling until the change is introduced.
Capital Economics, a forecasting group, says this year’s rise in house prices, driven by an acute shortage of property for sale, doesn’t look sustainable. Rising unemployment, tight lending criteria and the “overvalued” housing market will stifle any real recovery.
Ultimately, it expects house prices to fall by 10% in 2010 and 5% in 2011.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
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.
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.