There are wide geographical differences, however, in the extent to which borrowers will benefit from the government’s measure. In Scotland, Wales, northern England, Yorkshire and Humberside, the north west and the midlands, around two-thirds of borrowers will now pay no stamp duty on their house purchase in the coming year.
In south east England, however, the proportion of exempt borrowers will rise to only 27%. In greater London, only 11% of borrowers will not now pay stamp duty. And in both south west England and Northern Ireland, the proportion of borrowers exempt from stamp duty will rise around to around 40% as a result of the government’s decision to raise the threshold for stamp duty from £125,000 to £175,000 for one year.
In the aftermath of last week’s announcement, there was also some confusion over how much revenue the Treasury would forego as a consequence of raising the stamp duty threshold for a year.
The Treasury itself predicted that the measure would cost more than £600 million. But it may have based its calculations on the number of transactions in earlier years, when sales were higher than is now likely in 2008/09. We estimate that the reduced number of transactions means that the cost to the Treasury of foregone tax will be approaching £300 million if the stamp duty holiday lasts for a year, as the government announced.
In his analysis of the numbers in the Financial Times, Jim Pickard said: “The assumption that the scheme would cost £615 million, as the Treasury believes, would require more than 350,000 transactions in the £125,000-£175,000 bracket this year. But with just 289,300 transactions in the first six months of the year, experts said the entire housing market was on track to see just 600,000 deals during 2008.
“The Treasury itself says its measure should affect just one in six transactions in the housing market, implying just 100,000 or so deals in the affected bracket.”
Jim Pickard commented: “The new estimate could take some pressure off the government, which has come under fire over a lack of clarity as to how it will pay for the stamp duty holiday.
“But it suggests the measures will have less of a positive impact than intended and raises questions as to whether the £1.6 billion housing package is based on erroneous assumptions.”
