David Prosser: The housing market fears the worst

Outlook Just as retailers are dreading the return of the 17.5 per cent VAT rate, the housing market is getting increasingly nervous about the end of the stamp duty holiday for many home buyers. From New Year's Day, the threshold above which the tax becomes payable reverts to £125,000, compared with £175,000 now. That will be a hindrance for first-time buyers, many more of whom will now face the 1 per cent tax charge on house purchases.

First-time buyers are already a dwindling bunch. The National Association of Estate Agents said yesterday that just 19 per cent of houses sold in November went to first-timers, down from 45 per cent six months ago.

The problem is that even though house prices have dropped, and a sharp fall in mortgage costs over the past 18 months has made it much cheaper to service a home loan, the upfront costs of getting on the ladder are higher than ever. 100 per cent mortgages have disappeared, while 95 per cent loans-to-value are rare. Most buyers have to find a deposit of at least 10 per cent of the purchase price, and often significantly more.

Add in moving costs and stamp duty, and it is no wonder first-time buyers are so few and far between. Although many would-be homeowners would have no trouble staying on top of mortgage repayments, they can't get the money together for the deposit and other costs.

The return of the lower stamp duty threshold will add to that headache. So, while the Government cannot afford to go on stimulating the bottom end of the housing market indefinitely, there is an argument for extending the stamp duty tax break until more normality returns to the mortgage market and higher loans-to-value become easier to find.