It says a major barrier to recovery in the property market is the 3 per cent stamp duty tax applied to mortgages in the £250,000 - £500,000 bracket.
“Evidence suggests that the recent increase of the lowest stamp duty threshold to £120,000 has made negligible difference to hard pressed first time buyers,” said joint director Cath Hearnden.
“But it is the next threshold which is causing the market to stagnate. Paying 3% of any purchase price over £250,000 means buyers have to find at least £7,500 to hand over to the Government in order to move up the property ladder. And they are – understandably -digging in their heels,” added Hearnden.
It says the reluctance to find this extra money is stopping the market from flowing and preventing the completion of chains. With many standard family-sized houses now costing over £250,000 the firms says there is little choice for homeowners who need to trade up to accommodate a growing family.
“We hear from many clients who are unwilling to pay ten or twenty thousand pounds over the stamp duty threshold,” adds Hearnden. “That’s the cost of a great new kitchen or bathroom – they are looking for property under the threshold and keeping the cash for things they really need or want.
"Many sellers are reacting to this barrier by pricing their properties on or just under the threshold in order to secure a sale. This price bunching means the natural flow of homeowners moving up the property ladder is halted and has a knock-on effect on the higher end of the market, argued Hearnden.
“The third threshold, which stands at £500,000, requires purchasers to pay a whacking 4% tax, or at least £20,000. For many, this can be a deal-breaker.
“My Mortgage Direct believes the way to free the market from this stranglehold is a straightforward tiered system similar to income tax thresholds. A duty of 3% should be calculated on the remainder of the property price above £250,000, not the full amount, in the same way that taxpayers pay 40% on any earnings over £30,500.
“This system would be fair in our view, and there is no doubt that a great number of homeowners would decide to upgrade to larger, more expensive properties if they knew they weren’t going to have to give away a large chunk of their equity.
“If the Government wants to keep the housing market moving, stamp duty reform is a sure-fire way to do it.”
