Stamp Duty Cut UK Housing Market Election Boost, Home Buyer Examples
Housing-Market / UK Housing Dec 03, 2014 - 05:22 PM GMTBy: Nadeem_Walayat
The UK housing market will receive a significant boost from midnight tonight with what amounts to a cut in the amount of stamp duty charged on approx 90% of property purchases as the Chancellor, George Osborne in his Autumn statement does away with a huge anomaly / penalty in the way stamp duty tax is charged on property purchases, where for instance just a £1 increase in the price paid would tend to result in many extra thousands due in stamp duty tax that tended to result in huge bottlenecks around the stamp duty bands that acted as caps on house prices in many areas and thus resulted in much inertia.
The old method charged the percentage of tax in a band on the WHOLE amount of the purchase price, whereas the new method is now more in line with the way income tax is charged i.e. differing percentages charged on the amounts that fall within the stamp duty tax bands. For instance a property purchased for £300k would have been liable for stamp duty of £9,000 i.e. 3% on the whole amount, which now would be liable for stamp duty tax of £5k (£0 on 1st £125k, £2.5k on next £125k, and £2.5k on last £50k). Therefore the cut in stamp duty for 90% of home buyers will boost the housing market by making more cash available for larger deposits and unfreeze many areas of the housing market that were stuck as a consequence of the stamp duty bands i.e. £250k to £300k house prices band.
Old Stamp Duty Tax Bands
| Purchase price of property | Stamp Duty Rate on the whole price |
|---|---|
Up to £125,000 |
Zero |
Over £125,000 to £250,000 |
1% |
Over £250,000 to £500,000 |
3% |
Over £500,000 to £1 million |
4% |
Over £1 million to £2 million |
5% |
| Over £2 million | 7% |
New Stamp Duty Tax Bands
| Purchase price of property | Stamp Duty Rates |
|---|---|
| –Up to £125,000 | Zero |
| Over £125,000 - £250,000 | 2% |
| Over £250,000 - £925,000 | 5% |
| Over £925,000 - £1,500,000 | 10% |
| Over £1,500,000 | 12% |
The following table better illustrates how the change in the way stamp duty is now charged impacts on prospective home buyers against the preceding tax method.
| Property Sale Price | Old Stamp Duty tax | New Stamp Duty tax |
£125k |
£0 |
£0 |
£150k |
£1.5k |
£0.5k |
£200k |
£2k |
£1.5k |
£250k |
£2.5k |
£2.5k |
£251k |
£7.5k |
£2.55k |
£300k |
£9k |
£5k |
£400k |
£12k |
£10k |
£500k |
£15k |
£15k |
£501k |
£20k |
£15.05k |
£750k |
£30k |
£25k |
£1mill |
£40k |
£43.75k |
£1.1mill |
£55k |
£53.75k |
This is but the latest of a stream of housing market boosting election bribes, the preceding one was that following an election victory a Conservative Government will PAY 20% of the price of your new build home. Giving 100,000 home buyers an instant 20% profit! This will act to further encourage those sat on the sidelines wanting to buy to decide to climb on board the housing ladder. Thus perhaps as many as 1/2 million voters will have been encouraged to vote Conservative as they assume that they will be the lucky ones to take advantage of the Tory bribe that could potentially benefit them to the tune of as much as £80,000 EACH! Imagine if a political party promised you £80k cash for your vote!
Understand this, UK House Prices are NOT meant to FALL! The stamp duty cut as well as the 20% bribe will SUPPORT and further INFLATE house prices. If the Tories or Labour really wanted affordable housing then they would take actions such as taxing to decimate the buy to let sector that now represents 20% of Britains housing market! Only that would result in much cheaper mostly first time buyer properties flooding onto the market.
UK House Prices 5 Year Forecast
It is now over 11 months since the excerpted analysis and concluding 5 year trend forecast from the then forthcoming UK housing markets Ebook was published as excerpted below-
UK House Prices Forecast 2014 to 2018 - Conclusion
This forecast is based on the non seasonally adjusted Halifax House prices index that I have been tracking for over 25 years. The current house prices index for November 2013 is 174,671, with the starting point for the house prices forecast being my interim forecast as of July 2013 and its existing trend forecast into Mid 2014 of 187,000. Therefore this house prices forecast seeks to extend the existing forecast from Mid 2014 into the end of 2018 i.e. for 5 full years forward.
My concluding UK house prices forecast is for the Halifax NSA house prices index to target a trend to an average price of £270,600 by the end of 2018 which represents a 55% price rise on the most recent Halifax house prices data £174,671, that will make the the great bear market of 2008-2009 appear as a mere blip on the charts as the following forecast trend trajectory chart illustrates:
Additionally, a video version of excerpts of the forecast was posted during early January 2014 -
Current State of the UK House Prices Forecast
The updated Halifax average house prices (NSA) graph to October 2014 of £185,517 is currently showing a deviation of 3% against the forecast trend trajectory. In terms of the long-term trend forecast for a 55% rise in in average UK house prices by the end of 2018, then if the current deviation continued to persist then this would result in a 15% reduction in the forecast outcome to approx a 40% rise by the end of 2018.
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Source and Comments: http://www.marketoracle.co.uk/Article48483.html
By Nadeem Walayat
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Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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