CML calls for first-time buyer stamp duty reprieve

Thursday, 17 November 2011 9:47 AM

The Council of Mortgage Lenders is calling on the government to announce a reprieve for the end of the first-time buyer stamp duty concession, currently due to end in March 2012.

CML analysis shows that, after the previous stamp duty concession that ended in December 2009, the spike in sales of exempted properties that had pre-empted the end of the concession was matched by a corresponding slump. HM Revenue & Customs is due to publish an impact assessment of the current concession this autumn, but the CML believes that its withdrawal could distort the pattern of monthly transactions in a similar way to the ending of the previous concession. This would be unhelpful, given the fragile state of market confidence.

The CML believes that there continues to be a good case for fundamental reform of the "slab" structure of residential stamp duty, and has long advocated a move to a marginal rate system similar to income tax. But this is a longer term objective, and less pressing than the need to avoid short-term negative effects by removing the first-time buyer concession.

The concession itself is likely to be costing the government only a modest sum in foregone revenue as a result of the relatively low number of transactions in the market at present - and it was, in any event, a stated intention (albeit by the previous government) that the cost of the concession would be offset by the new permanent 5% higher rate of stamp duty on properties worth more than £1 million, which took effect at the start of the current financial year.

The lion's share of residential stamp duty yield - 87% - comes from sales of properties of more than £250,000 value. In absolute terms, the revenue from stamp duty has fallen markedly from a peak of £6.7billion in 2007-8 to just over £4 billion in 2010-11, but it would rise only modestly if the concession is allowed to expire as planned, since low transaction numbers are the primary reason for the decline (see chart).

View chart showing yeld from residential stamp duty, by rate bands here.

It seems unlikely that the benefit of the modest increase in yield that would be obtained by reimposing first-time buyer stamp duty would be outweighed by the additional negative drag on confidence that could see transaction numbers pulled down even farther among this important housing market demographic.

CML director general Paul Smee commented:

"While there is no clear evidence that the stamp duty concession has incentivised an increasing number of first-time buyers to buy, it is highly likely that there would have been fewer of them if it had not been in place. The CML believes it would be a mistake to pull the plug on the concession - at least until the housing market returns to a firmer footing.

"First-time buyers need to get the message that the government supports them as they take their first steps into a housing market where confidence needs to be restored. The housing market can act as a force for growth in the economy, but if this is to happen then buyers, lenders and builders alike all need a clear message that the government sees them less as part of the economic problem, than as part of the economic solution."

NOTES TO EDITORS

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 94% of all residential mortgage lending in the UK. There are 11.2 million mortgages in the UK, with loans worth over £1.2 trillion.

2. The stamp duty November 2011 factsheet can be found here.

3. This press release is also available on our website if you are unable to view the chart within the body of this email.


CONTACT
Sue Anderson- 020 7438 8924
Bernard Clarke - 020 7438 8923
Jayne Walters - 020 7438 8922

NIGHT/WEEKEND CALLS ONLY
Sue Anderson- 07983 388755
Bernard Clarke - 07983 388672
Jayne Walters - 07983 388764

CML PRESS OFFICE
twitter: www.twitter.com/cmlpressoffice
 

Tags:
• economy
,
• economy and finance
,
• lending