Housing: Stamp duty blow to first-time buyers

The Chancellor's decision not to extend the stamp duty holiday on lower-value homes was a "poke in the eye" for first-time buyers, analysts warned yesterday, adding that the move threatened the fragile recovery in the housing industry.

The Chancellor told the House of Commons that the break from stamp duty, under which anyone buying a property for £175,000 or less avoids paying the 1 per cent tax, would end on 1 January. The threshold has been in place since September 2008 when Mr Darling increased it from £125,000. The threshold will go back to £125,000 at the start of next year.

"Rising house prices may suggest that the residential property industry no longer needs any support, but this is far from the truth. The rises do not mark a recovery, but reflect a severe constriction in the supply of homes that we need to do more to address," said Nick Jopling, an executive director at property consultancy CB Richard Ellis.

"Prices are already out of reach for many first-time buyers, who are struggling to gain a footing on the housing ladder thanks to the constraints in the mortgage market. At its very best, it could be described as a poke in the eye to any first-time buyers trying to grasp the lowest rung of the housing ladder," said Mr Jopling.

Research has indicated a steady improvement in house prices in the last six months. Halifax's House Price Index, published on Tuesday, showed a bigger-than-expected 1.4 per cent jump in November. However, market analysts have suggested that the rise has been because of restricted supply, rather than a genuine thawing of the market. Most argue that higher unemployment could force prices back down in 2010.

While the removal of the stamp duty holiday will have little impact in London, where average prices are well above the £125,000 threshold, other areas of the country will be hit hard.

"The overall impact of the move yesterday will have a limited effect, but in some regions of the country the impact will be felt harder," said Simon Rubinsohn, senior economist at the Royal Institute of Chartered Surveyors. "In London most houses are too expensive, and in some areas of the North a number of homes fall below the £125,000 mark anyway, but in places like Scotland, Wales and the West and East Midlands, the housing markets are more vulnerable to the changes."

Mr Rubinsohn and others accused Mr Darling of missing an opportunity to overhaul the system of taxing the property market, saying that the stamp duty levy distorts the market. "An extension to the holiday should be followed by a move to a marginal system where higher rates are only paid on the value of a property over the tax threshold. This would help remove the distortions caused by the current slab system and enable the property market to operate more effectively in the long term," said Mr Rubinsohn.

Housebuilder Barratt Developments said yesterday that it would continue paying the stamp duty on all its homes up to the value of £250,000.

The view from the marginals: 'Government is doing its best'

Kay Wilkinson, a mother of two from Colne, Lancashire.

"Some of the figures you hear about the budget deficit are so huge it is frightening — each family owes so many tens of thousands of pounds you just think, 'oh my God'. The Conservatives are saying the Chancellor hasn't gone far enough. It may sound cynical but I think they would just say the opposite of whatever he did.

I feel about the same level of optimism about the economy that I felt in the summer, though it can be hard not to be affected by the doom and gloom. I do believe the Government is doing its level best to get us out of this hole. This is the first year I have had a child in school and my experience has been absolutely brilliant. I am astounded at how much better schools are now than when I was there. Everyone says that is because of Labour and, if so, that is a great thing to have done, so I am pleased that the education budget is being ring-fenced. Providing more free school meals can make a big difference to some families.

I don't know yet whether we would qualify for a new boiler or insulation because we missed out under the last scheme. I welcome anything that will help the environment but, when you hear about how much money is owed, that really is the priority. It is hard not to feel angry towards bankers when they get these huge bonuses, so the 'super-tax' has got to be a good one."

Constituency: Pendle; Labour Majority in 2005: 2,180