Stamp duty is to increase from 1 to 1.5 per cent on purchases above pounds 250,000 and double to 2 per cent on purchases above pounds 500,000.
Fears had been raised that Gordon Brown might announce a rise in stamp duty to 2 per cent of all property purchases above pounds 100,000 and abolish Miras altogether, adding up to pounds 30 a month on all home loans over pounds 30,000.
Lenders and property companies claimed a 1 percentage increase in stamp duty might cause house prices to fall by up to 4 per cent. Michael Stott, of Stamp Duty Concern, said: "We are relieved, although our argument has been that stamp duty is a tax that should be abolished, not increased."
Michael Coogan, director general at the Council of Mortgage Lenders, said: "My initial reaction is one of relief. Stamp duty will only affect some 1.4 per cent of transactions and the people in that category can afford the charge. I think the Chancellor accepts the argument that what has been called a housing boom in recent months has been little more than a recovery, particularly outside the South-east of England."
However, Mike Jackson, chief executive at Birmingham Midshires, called the cut in Miras a "kick in the teeth to the housing market".
The Chancellor's decision to drop Miras from 15 per cent to 10 per cent came at the bottom end of most experts' expectations. Mr Brown told the Commons: "I am determined that ... we never return to the instability, speculation and negative equity that characterised the housing market in the 1980s and 1990s. Volatility is damaging both to the housing market and to the economy ... I will not allow house prices to get out of control and put at risk the sustainability of the recovery."
The cut in Miras announced yesterday will apply from April 1998, worth about pounds 900m a year in extra tax revenues.
On a typical pounds 50,000 interest-only loan, the drop in interest relief will mean a rise in monthly payments from pounds 367 to pounds 377 at existing rates of interest. Repayment loans will be affected differently, as capital repayments begin to overtake interest payments mid-way through the mortgage period.
The Inland Revenue said the Chancellor's stamp duty proposals would take effect from 8 July, when they are expected to be approved by the Commons. Any exchanges of contracts taking place before then will continue to be charged at the existing rate no matter when completion takes place.
The change will affect about 30,000 residential property and about 30,000 land and commercial property transactions a year, raising about pounds 240m in 1997-98, rising to pounds 490m the following year and pounds 540m in 1999-200. Some 25 per cent of that will come from residential homes and the remainder from land and commercial properties.
Brian Davis, chief executive at Nationwide building society, the UK's largest mutual lender, said: "It is difficult to welcome moves that raise costs for borrowers. Nevertheless, it could have been worse. Part of the reason for the boom the last time came from the strong incentives to lend, which led to people borrowing more than they could afford. We have become far more conscious of this, which plays a part in preventing a similar situation from re-occurring.
"At the same time, his comments should be seen as a warning to us that the market should not go berserk."
Mr Davis welcomed the Chancellor's other housing measures, particularly moves to extend the availability of affordable housing. Both Nationwide and the Bradford & Bingley are large lenders to housing associations.
A spokesman for Bradford & Bingley said: "The effect of the Miras cuts will be fairly marginal in terms of the housing market. That said, the Chancellor does have two slices of salami left there, in that he can cut it to 5 per cent and then nothing."
Financial advisers predicted yesterday that the tax changes would have little impact on the housing market. Steve Smith, a mortgage specialist at Sedgwick Financial Services, said: "This is not going to cause any slow-down. The worst-case scenario for most people is an increase of pounds 10 a month in 10 months' time."
Simon Kingdon, finance director at West Bromwich building society, said: "We wonder whether it will have the desired effect of cooling the economy. It now falls to the Bank of England to make its critical assessment of the Budget."
Peter Carroll, chief executive at Beneficial Bank, a large US-owned loans firm, said: "I can't see that this is going to have any dampening effect. My concern is that interest rates may have to rise, perhaps by two half percentage points later this year."Reuse content