How much will today's stamp duty cuts really cost?

Posted on 2 September 2008 by Ray Boulger

2 Comments

According to The Council of Mortgage Lenders (CML) just over 289,000 mortgages were granted to home buyers in the first half of this year in the UK and 50,000 (17%) of these buyers would have benefited if the new tax regime had applied. As the number of mortgage approvals has been declining all the indications are that there will be fewer mortgages for home buyers in the second half of the year. However, if the measures announced today have even a modest positive impact the total number of buyers who will benefit should increase, subject to lenders having sufficient funds to meet this extra demand.

Whilst I don’t expect the stamp duty changes announced today to make a big impact, they should generate some increase in activity, probably back up to a little above the level prior to the inept leak from the Government that they were planning to do something on stamp duty.

Around a third of all housing purchases are made without a mortgage and so if we simply annualise the 50,000 figure from the CML and increase it by 50% to allow for properties bought without a mortgage that would suggest a figure of 150,000 purchasers who will benefit from this temporary stamp duty suspension over the next year. Property sales between £125,001 and about £130,000 were almost a no go area because of the stupid and unfair way stamp duty is calculated and now sales between £175,001 and, say, £180,000 will become a no go area instead.

Even if we assume all 150,000 purchasers who will benefit from the temporary stamp duty suspension save the maximum £1,750 the total cost to the Exchequer will only be about £260m p.a. However, a Government press officer told the BBC this morning that the cost to the Exchequer would be £600m p.a.

For this figure to be even vaguely accurate the number of housing transactions would have to more than double over the next year, compared to current levels.

I can only draw two conclusions from this:

• The Government is being wildly over optimistic about the impact of the temporary partial suspension of stamp duty.
• Today’s announcement was cobbled together quickly as a result of the damage done by the earlier leak and either hasn't yet been properly costed or the Government needs to employ more people with at least a GCSE in maths.

Category: House and home, Miscellaneous, Property market

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