Yesterday, in his last Budget speech before the General Election, Alistair Darling announced that the Stamp Duty threshold on house sales would double from £125,000 to £250,000 - a measures which he claimed would offer nine in ten first-time buyers a helping hand onto the property ladder.

I'm not particularly politically active but as the UK's finances have a direct effect on my property portfolio it's always worth keeping a close eye on events like the Budget. In my humble opinion this new Stamp duty holiday will have little effect and The Chancellor would have been beter off looking towards fiscal stimulus which would have created more jobs in the housing sector and add prosperity to the market as a whole.

In economics, fiscal policy is the use of government expenditure and revenue collection to influence the economy. A programme of government investment in housing would not only stimulate the wider economy in the short term, but would increase long-term growth, thereby lowering the debt levels through a higher tax take. New housing developments create a host of new jobs for tradesmen, surveyors, suppliers and transporters as well as those service providers involved in the buying and selling of new property such as estate agents, mortgage brokers, solicitors and yours truly ;)

If these individuals and companies have lots of work it stands to reason that they will have a good revenue stream which will then be taxed by the government. They will also spend more on goods and services which means more VAT is payable and of course the government will stand to gain the Stamp duty payable on the new properties.  

On the other hand, while the new Stamp duty measures might sound promising in theory it will have little effect in practice. A £2500 saving on tax is of little relevance when a first-time buyer has to put down £100,000 deposit or can’t qualify for finance.  

The politically charged “First time buyer’s concession” will exempt anyone who has not previously owned property from paying Stamp Duty on a property purchase up to £250,000. This will be effective as of midnight on the 24 March 2010 until 25 March 2012. Stamp Duty is currently levied at 1% of the purchase price on properties worth between £125,000 and £250,000 and all buyers who are not purchasing their first property will still pay this.

The Chancellor also said that this concession would be partly funded by an increase of Stamp Duty of 5% for properties over £1m from April next year.

But there have long been calls for the Government to scrap Stamp Duty altogether, or at the very least reform the seemingly unfair system. The slab-style tax jumps from 1% to 3% on properties above £250k and then to 4% on those homes above 500k. But this system has not been adjusted to allow for the rampant rise in property prices over the last decade and also does not take into account regional variation in house prices.

Potential first time buyers will take little joy out of the news that the annual rate of house price increase currently stand at 5.3% with the majority of property price indices pointing towards further rises this spring. This along with the fact that banks are cherry-picking only those with the very best credit score will keep most in rented accommodation for many years to come. 

For the better part of 18 months now we have maintained that the private rented sector in the UK will see strong growth in the short to medium term due to the fact that first-time buyers cannot enter the market and are therefore forced to rent. The Chancellor has said nothing in his Budget speech that changes this. It’s therefore fundamental that Government realize property investors, both domestic and international, have an important role to play in providing accommodation to those struggling to get a foot on the housing ladder and start supporting them accordingly.

But whether we will soon have a new Chancellor with new ideas and a new budget, only time will tell.

Wishing you health, wealth and happiness,

Mike Smuts
Property investor and MD of Smuts & Taylor.