Stamp duty ‘killer’ for buyers young and old

First-time purchasers and pensioners stuck in large family homes contributing to market stagnation

FOR five years, Matt and Gemma King have endured a cramped family life with their two children in an apartment in West Sussex.

As their son and daughter got bigger, the upstairs, two-bedroom flat felt even smaller as they craved a garden and storage space.

In a few weeks, they will move into a three-bedroom house in Crawley with that coveted outside space and separate rooms for William, five, and Olivia, two.

But because of high house prices and the financial burden of stamp duty this long awaited move has required help from a housing association. “We are buying 25 per cent of the house, with the rest being paid in rent to a housing association,” said Mr King, 40, a yield manager in the aviation sector. “Taking on that £77,000 mortgage meant we didn’t have to pay any stamp duty.

“If we had a mortgage for the full £330,000 cost of the house, we would have had to find £6,500 extra. A lot of people don’t have that even as a down payment. To get that whacked on top would be a killer.”

The plight of the King family is indicative of a housing market in the throes of a slowdown, albeit apparently “moderate”. And, the latest academic research suggests stamp duty is compounding problems as people at the top and bottom of the ladder shun moving because of the tax.

First-time buyers, families needing more space for children, and pensioners trapped in large family homes that young people cannot afford to take on are all thought to be contributing to the market stagnation. Joan Fryer, 78, and her husband, David, 81, were forced to dip into life savings to move from their four-bedroom family house to a more modern home, complete with a porter, lifts, intercom and panic alarm system.

“We had to consider it carefully. We had to pay £12,000 in stamp duty from our life savings. Unlike my husband, I don’t have a pension. So if I’m left on my own I have to rely on those savings.

“I think it’s ridiculous that the Government says it wants more homes for young people, but then stops people like us from moving so our four bedroom house is available for young families.”

A spokeswoman for Saga, a company offering financial services for the over50s, said seven out of 10 older home owners want to move, but cannot. “Many may be asset rich, but are simply not cash rich enough to make the costs associated with moving add up,” she said. “Many have spent years trying to climb the property ladder in the hope that one day they will be able to downsize and release some cash to help them live the life they want to in retirement, or give some money to their children and grandchildren.

“However, they are increasingly finding themselves trapped in inappropriate housing simply because of crippling stamp duty costs.”

At the other end of the scale, those fortunate enough to afford a £5 million home must still be confident the investment will rise in value by £600,000 to avoid making a loss.

The research by LSE and the VAST Institute for Economic Research claims the rate of home moving would rise by 27 per cent if stamp duty was abolished. Experts claim the stall in house moves has cost the economy nearly £1billion. Solicitors, estate agents, removal firms, decorators, electricians, plumbers, carpenters, gardeners, DIY shops and interior designers, are among those industries reliant on property changing hands. Ion Fletcher, director of finance policy at the British Property Federation, said: “Stamp duty land tax on residential or commercial property is a harmful tax that ultimately discourages transactions. This has a negative impact on the wider economy and social mobility.

“Fewer buyers means less money available for new buildings, which in turn means less demand for construction jobs. Not only is that bad for the economy in the short term, but by not building today the homes, offices and industrial facilities to boost future productivity, we are hurting our long-term prospects too.”

Mr and Mrs King anticipate waiting five years before they can buy a home without the support of a housing association. “Perhaps in five years time I will be able to afford to get a mortgage that doesn’t involve shared ownership,” Mr King added. By then, stamp duty may have been reviewed to help that dream become a reality.