On its own, a figure of 3 per cent doesn't sound much. But when it's 3 per cent of £250,000 or more, the sum can wipe out your savings.
This is stamp duty, and the size of the tax bill, close to £10,000, has startled Karen and James Lowe of Billericay, Essex, who are in the middle of a move to a three-bedroom house.
"It's a nasty shock," says Karen, who has found herself crossing the threshold where the duty payable leaps to 3 per cent - from 1 per cent on properties with a value between £125,000 and £250,000. "The jump is staggering.
"It's worse because the figure is payable on the whole value of the property. It would be much more affordable for us if the 3 per cent was only charged on the amount over £250,000."
However, with an expanding family, the Lowes have no choice but to pay the bill in their search for a bigger house.
Their complaint will be familiar to tens of thousands of homebuyers across the country.
In one in six towns in England, average house prices have now broken through the £250,000 barrier, according to new research from the Halifax. In July 1997, not a single town had an average value of £250,000; in 2001, it was only one in 25.
Thresholds on the top two bands - 3 per cent above £250,000 and 4 per cent above £500,000 - have not changed in the nine years since their introduction. This is despite a rise of 162 per cent in house prices in the same period. So people buying in the £250,000- plus bracket will pay at least £7,500 in duty.
While the threshold for the 1 per cent band has been increased from £60,000 to £125,000, it too remains contentious. New research from the Council of Mortgage Lenders shows that the proportion of first-time buyers paying stamp duty has leapt from 48 to 56 per cent over the past year. According to the Halifax, the average cost of a starter home is now £181,000.
The seemingly arbitrary nature of the thresholds is a cause of consternation in the industry. "If you buy a house for £250,000, you will pay 1 per cent stamp duty totalling £2,500," explains Peter Bolton-King, chairman of the National Association of Estate Agents. "But if the house costs £250,001, you will pay £7,500. It's grossly unfair."
The Halifax wants the duty to be tied to house price inflation. "If it had been index-linked back in July 1997, the 3 per cent threshold would now start at properties of £650,000," says Paul Fincham of the Halifax. "So the vast majority of second-time buyers would still be paying 1 per cent."
Such calls are falling on deaf ears: a Treasury spokesperson says a radical overhaul of stamp duty is not on the agenda.
Many homebuyers used to be able to exploit a loophole in the system by paying under the threshold for the property but making a separate payment to the vendor for fixtures and fittings. But in December 2003, the rules were changed so that homebuyers had to present their own self-assessment form stating the precise cost of the house.
"Revenue & Customs is watching sales at the £250,000 mark like a hawk," says Ray Boulger of broker John Charcol. "Although willing parties can agree on their own price for fixtures and fittings, you will now have to justify the cost fully."Reuse content