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Last Updated: Wednesday, 16 March, 2005, 12:01 GMT
First time buyer's stamp duty hopes
By Julian Knight
BBC News personal finance reporter

James Sherwin-Smith
James Sherwin-Smith wants radical reform of stamp duty
With the Chancellor widely tipped to increase the stamp duty threshold during Wednesday's Budget, a would-be first-time buyer ponders whether this would help him achieve his property owning dream.

Some would say that James Sherwin-Smith faces mission impossible.

The 24-year-old management consultant from London is trying to buy his first home in the capital.

He has already given up the idea of buying a home alone - cat-swinging room only properties did not appeal - and instead he plans to pool his resources with two university friends, both keen to get on the property ladder.

As far as James is concerned any help the Chancellor may give him in Wednesday's Budget would be welcome.

"First-time buyers are stretched to the limit," he said. "Some people are borrowing five times salary to get on the ladder.

"But I fear negative equity, particularly with so much uncertainty over the housing market, so ideally I want to be able to put down a 25% deposit.

I can't think of many properties in London or the south east of England for under 100,000 or 120,000, so even if Gordon Brown doubles the stamp duty threshold it won't make any difference to me
James Sherwin-Smith

"To get there I am being conservative with my spending, setting aside regular savings each month."

Price rises

But James does not think that an increase in the stamp duty threshold from 60,000 to 100,000 or 120,000 is the help he needs.

"I can't think of many properties in London or the south east of England for under 100,000 or 120,000, so even if Gordon Brown doubles the stamp duty threshold it won't make any difference to me."

James seems to have a point. According to research by website myhouseprice.com, just 7,000 properties sold in the capital last year for under 120,000.

"I am sure that there are a few parts of the country where it could help things but prices have been rising very fast in the north and Wales."

Stamp duty works by imposing a percentage charge on the full price of a property once the threshold is breached.

Up to 60,000 - nil
60,001 to 250,000 - 1%
250,001 to 500,000 - 3%
More than 500,000 - 4%

Therefore, buy a property for 59,999 and pay nothing - but buy one at 200,000 and the charge is 2,000.

Because James is planning to buy with two others a three bedroom property will be needed, estimated cost 400,000.

A 400,000 property would incur stamp duty at 3%, a 12,000 one-off charge.

"What would really make a difference would be if Gordon Brown exempted first-time buyers altogether from paying stamp duty," he says.

Stamp duty reform would be a good start but if the government is serious about encouraging first-time buyers we need a package of measures
Helen Adams, FirstRungNow.com
Package of measures

Helen Adams, director of FirstRungNow.com, a website offering advice for home buyers, told BBC News that people like James needed far more help.

"Stamp duty reform would be a good start but if the government is serious about encouraging first-time buyers we need a package of measures," she said.

"Shared ownership schemes have got to be expanded and buy-to-let landlords should be taxed so to discourage them from buying up all the one and two bed properties.

"First-time buyers are vital to the health of the housing market and the economy."

Market hopes

But James does not expect the Chancellor's Budget to provide the key to his home owning ambition.

Instead James is pinning his hopes on the recent slowdown in the UK housing market.

"Stamp duty is only one cost of moving home: there are survey, legal and mortgage fees. For the time being I am going to keep on saving.

"With the housing market slowing and rents falling, the urgency isn't there as it once was."

Your comments

While not a first-time buyer, my target market is close to one of the thresholds so a small change in list price can have a huge effect on the cost. Apart from the ideal-but-unlikely utopia of abolishing stamp duty, the Chancellor should at the very least change it into a progressive tax in the same way that income tax works. That way, there is nothing to pay on the first 60,000, 1% on the next band, etc. It would remove distortions in the market caused by the huge cost penalty associated with crossing an arbitrary threshold.
Dave, Cambridge UK

I was a first time buyer years ago. I agree the chancellor should help first time buyers but I can't see how it would be possible. How can he distinguish them as a group? Would someone who sold their house and moved to rented accommodation be considered a first time buyer for their next purchase? Is there a list of people who have ever owned homes in the UK? If the house was in the husbands name could the next house be bought in the wife's name?
Stuart, London

Stamp duty on housing is an iniquitous tax on everyone. Here in Clitheroe there is not one single home for sale under 95,000.We're moving again for the second time in two years and feel the Chancellor's made plenty out of us. Give us a break Gordon!
Janet Norcliffe, Clitheroe

UK buyers should bear in mind that despite an overheated housing market - one of the more surreal aspects of living in London or the South East - the UK's stamp duty charges are low by EU standards. I bought my first house in Belgium, where stamp duty is 15% and notary's fees add another 7% to the cost of buying a first-time home, and recently bought in Germany, where purchase costs (notary's fees, stamp duty, estate agent fees) amounted to 10% of the total. However, while house prices have increased healthily in both countries, they remain affordable. Increasing UK stamp duty might actually help Mr Sherwin-Smith by reducing the move-move-move tendency which has driven British phenomena like 'golden postcodes', cat-swinging houses at 200K+ and lifelong mortgages.
Pete, Cologne, Germany

Try and stem the buy to let. Landlords own most 1 and 2 beds and there are so few of them to try and buy. They get bought up as soon as they come on the market.
Mike, Cambs

I suggest leaving the threshold at 60k but make the first 60k stamp duty free similar to the personal allowance principle on PAYE. This would have the effect of helping all house buyers yet still meaning the better off pay more.
Toby, London

The major problem with Stamp duty is that there are such large jumps between the price points. A simple or fairer way would be to have it on a sliding scale as in the Tax system where you only pay the % on the amounts above the bounding. e.g for 400,000 old system would be 12,000 based on a sliding scale the amount would be 6,400.
John Kilner, Manchester, UK

If stamp duty is to be retained at all, it would be fairer to impose stamp duty on sellers who, in recent times anyway, are likely to be making a profit on their sale, and therefore more able to shoulder the burden. This would be more equitable as you would effectively be taxing a profit made rather providing a barrier to entry.
Alec, London

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