Mortgage lenders warn of Budget rise in stamp duty

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The Independent Online

The Government is planning to slap another rise in stamp duty on homebuyers in next spring's Budget, the head of the mortgage industry has warned.

Michael Coogan, the director general of the Council of Mortgage Lenders, said he did not believe the Government had a coherent vision for the housing market other than as a source of revenue.

He said he doubted ministers would take on board the warnings sounded by the reviews into the housebuilding industry and the mortgage market published this week.

Kate Barker, a Bank of England economist, said planning delays and housebuilders' drive for profits had constricted the supply of new homes, forcing up prices.

She also found that other countries made greater use of taxes to manage supply and demand.

David Miles of Imperial College, London, found that the preponderance of cheap short-term mortgages, which have allowed homebuyers to take on record debt, was a result of lenders cross-subsidising between old and new borrowers.

Mr Coogan, speaking at a seminar in the House of Commons, said: "I have always believed that the result of these two reviews will be that stamp duty goes up in April."

Asked how the Government could achieve a better balance between public and private housing sectors, he said: "The Treasury does not want a balance - it just wants the stamp duty.

"There have been some abortive attempts to help key workers and we welcome the possible support for an intermediate tenure highlighted in the recent low-cost home ownership. This is not enough to demonstrate a 'strategy'.

"If we take mortgages in particular, after six years of a Labour government, I still have no idea what 'vision' the Government has for home ownership in the UK in five, 10 or even 25 years' time."

Stamp duty applies at 1 per cent for homes selling for between £60,000 and £250,000, at 3 per cent up to £500,000, and then at 4 per cent. It raises £3.5bn annually for the Treasury.

This compares with rates of more than 10 per cent in Belgium, up to 9 per cent in Ireland, 6 per cent in Holland and 4.8 per cent in France.

There was widespread relief that Gordon Brown did not announce any hikes in stamp duty in last week's pre-Budget report, but disappointment that he did not raise the starting threshold to help first-time buyers.

The CML says this means that an extra 138,000 homebuyers will have been dragged into the stamp duty net this year alone.

It is urging the Government to reform the regime to ensure that only the proportion of the value that crosses a threshold is taxed at the higher rate, rather than the total value. Currently a home worth £250,000 incurs £2,500 while one worth £250,001 attracts £7,500.03.

However, Ms Barker warned in her report that stamp duties might have to be raised at the top end of the market to prevent a loss of revenue to the Treasury.