From March 25th 2012, first time buyers will pay 1% duty on purchases between £125,000 and £250,000. Properties however under the threshold of £125,000 will not be liable for any stamp duty tax. For properties over £250,000, a tax of 3% is payable and this increases to 4% and 5% for properties at half a million pounds and over.
The scheme did not have the favorable impact on the property sales sector that the government was hoping for in any case. The stamp duty holiday had even less of an effect in Leeds, where most 1 and 2 bedroom flats and houses are close to or below the threshold anyway. In fact, the stamp duty holiday ending may bring down the price of properties at approximately the £130,000 mark, down under the threshold in an effort to tempt purchasers unwilling to pay stamp duty.
Some have accused the government for failing to tackle the problems facing first time buyers, however, the take up has been low, mainly due to the lack of mortgage funding for first time buyers and the large deposits required by mortgage companies.
The government now wishes to trial new schemes in the hope of breathing some sort of life into the very stagnant property sales market. Instead, it seems as though the government will be focusing on right to buy schemes as well as underwriting mortgages to allow security for mortgage companies lending to young families with a mortgage up to £100,000. At the same time the government is looking into creating a fund which will allow major housebuilders to create 16,000 new homes.
If we look into the Leeds property market in particular, it’s easy to see that young people’s confidence and aspirations regarding owning their own properties are currently small if not non-existent. The high price of property compared to average wages, albeit lower now than in the peak of 2006 and 2007, combined with the hesitancy of mortgage companies to take risks within the mortgage market, withholding mortgage funding to young people without a large deposit, has created a hugely stagnant sales market in Leeds.
The large number of Leeds landlords who have purchased property to rent to a very buoyant private rented sector in Leeds has kept prices for small 1 and 2 bed flats and houses across Leeds relatively high. A lack of new investment in property and lack of funding for housebuilders has meant property is still scarce, keeping prices fairly high.
If the government is to breathe new life into the property industry with funding made available to housebuilders to kick-start construction, the target of just 16,000 new homes is grossly no-where near enough. Nationally, we would need 200,000 new homes built this year to lower the scarcity of property and to force the price of property down to an affordable level for first time buyers in Leeds. One problem could be that the land bought by housebuilders, especially during the last decade was at such a high price, building new properties on the land is uneconomical compared to the new, lower, sales value.
The government underwriting of mortgages for young families and professionals could really help the market at a time where the number of first time buyers moving onto the property ladder has hit an all-time low. The government’s new strategy is to stimulate the mortgage market by guaranteeing mortgages to new purchasers for up to 95% Mortgages.
Our opinion is that the industry is going to take a long time to recover, and that to restore young people’s faith in buying a property will take longer than we think. Owning a property without any equity or equity growth is similar to a ball and chain around your feet. We will see a rise in purchases and first time buyers entering the market at the same time as the Nations confidence in the property industry increases, correlated to a rise in values, and an increased confidence within the mortgage and banking markets, correlated to economic growth. But when will that be?