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Property tax reform threat for mortgage holders

Date: Wed, 24 Nov 04 Analysis

Charcol, the independent mortgage broker, is calling on the Chancellor to announce fundamental changes to the property tax stamp duty in his Pre-Budget Report on December 2.

While the Government often claims it is keen to remove all inequality in the tax and benefits systems, Ray Boulger of Charcol noted that "actions speak louder than words".

"The current structure of stamp duty land tax is grossly unfair," he said.

"Abolishing this tax is clearly a non-starter and so Charcol would like to see it reformed to reflect the way income tax is structured.

"With income tax, the higher percentage rates of tax are only payable on the amount of income over certain thresholds. However, with stamp duty land tax, once you reach a certain level, borrowers are forced to pay the higher percentage on the total amount."

To demonstrate this, Charcol points out that, under the current system a house priced at £250,001 requires purchasers to pay three per cent in stamp duty (£7,500). However if the house cost £250,000 stamp duty would stand at one per cent (£2,500).

Mr Boulger continued: "Stamp duty has become more of a key issue for many potential first-time buyers. The proportion of loans made to first-time buyers has been steadily falling for 5 years.

"In 1999 first-time buyers accounted for 47 per cent of all loans, according to figures from the Council of Mortgage Lenders. However, this figure has since fallen sharply, and this year is under 30 per cent."

Mr Boulger claimed that a lack of first-time buyers reduces liquidity in the market and that addressing this issue should now be a priority for the Chancellor.

"Less liquidity means fewer transactions and fewer transactions means less tax for the Chancellor," he said.

"For many potential first time buyers stamp duty land tax is one burden too many in preventing them from buying their first property and this unfair tax is ripe for reform."

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