On the threshold of change?

Stephen Pritchard surveys the housing policy issues that may be tackled in today's Budget

Home buyers will be watching today's Budget closely to see whether Gordon Brown acts to reform stamp duty. According to the Halifax, as many as 90 per cent of first-time buyers are now paying the tax, which is levied on the purchase of most homes over £60,000.

Home buyers will be watching today's Budget closely to see whether Gordon Brown acts to reform stamp duty. According to the Halifax, as many as 90 per cent of first-time buyers are now paying the tax, which is levied on the purchase of most homes over £60,000.

Further up the housing ladder, in 16 per cent of homes the average price is now above £250,000. This is the threshold where stamp duty rises from 1 to 3 per cent. A further 67 towns will fall into this category within four years, assuming modest house price inflation of just 4 per cent.

The rising cost of stamp duty has prompted lenders, not usually known for their political activism, to call for reform. The Halifax wants to see the thresholds adjusted in line with property inflation.

The last time the nil-rate band was adjusted, to its current level of £60,000, was in 1993. To bring that in line with today's prices, the threshold would need to be £156,900. And Charcol, the mortgage broker, has called for wholesale reform to remove some of the distortions to the market caused by the way stamp duty works.

Unlike most taxes, moving from one tax band to the next means paying the higher amount on the whole transaction. In this way, someone buying a property for £59,999 will pay no stamp duty, but someone paying £60,001 will pay £600 and a penny. Likewise, someone buying a property for £249,999 will pay £2,499.99 in stamp duty. Someone paying £250,001 for a house will pay £7,500.03.

There is also growing pressure on the Chancellor to introduce a system that helps first-time buyers. The Halifax calculates that the average first-time buyer pays £1,300 in stamp duty.

David Hollingworth, from mortgage brokers London & Country, says stamp duty is a particular problem for sellers whose properties are worth between £250,000 and £300,000. He says there is growing evidence that sellers of homes worth around £270,000 are having to drop their prices, pay the stamp duty or in some cases, do both.

"If you have a property that should be priced above £250,000, unless it is above the higher band by a big margin, you will struggle," he says. This is because buyers are reluctant to pay a large increase in tax for a small increase in a property's value.

The Inland Revenue has also clamped down on ruses to avoid stamp duty. The move to Stamp Duty Land Tax last year put new requirements on solicitors to ensure that the buyers are paying the right amount of tax. The Revenue has said that it will look carefully at transactions around the tax bands for signs of tax avoidance.

Measures such as charging separately for fixtures and fittings are likely to be scrutinised by tax inspectors, with the Revenue expecting any fixtures and fittings sales to reflect the true value of the goods. This is notoriously difficult to prove, however. "It has to be a realistic amount," says Hollingworth.

The Inland Revenue is also making it more difficult for buyers and sellers to avoid stamp duty by doing property swaps.

Buyers also face rising costs from other sources. Mortgage arrangement and "booking" fees have risen steadily over the last few years, and conveyancing costs have also gone up, especially because some solicitors and conveyors charge a fee according to the value of the property. Some surveyors also work in this way, so their fees will have risen, and estate agents, who charge a percentage of the sale as commission, are also charging more.

Fortunately, the move towards electronic conveyancing is offsetting rising legal bills to some extent, and greater automation is starting to cut survey costs, too.

Competition between lenders means there are plenty of deals offering free surveys or valuations and help with legal costs, and the relative shortage of sellers in the market gives home owners more scope to negotiate with their estate agents over fees.

But there is another area where rising house prices are benefiting the Treasury. At the moment, the Halifax calculates that 2.4 million properties are valued above the inheritance tax threshold. House price inflation of 4 per cent a year could increase that to four million homes by 2015.

The Government's own figures suggest that 5 per cent of estates will pay inheritance tax this year - more than double the number in 1996 to 1997. The Halifax is calling on all political parties to raise the inheritance tax threshold to £390,000, to allow for house price inflation. It remains to be seen whether Gordon Brown is that generous this afternoon.