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People Cannot Move Because Stamp Duty Apparently


Scooter
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The Times December 05, 2006

Loft conversions and house extensions to be put on

fast-track

Jill Sherman, Whitehall Editor

Improvements won't need approval

Small businesses also to be exempt

Homeowners would be able to build conservatories, kitchen extensions and loft conversions without planning permission under changes to planning laws proposed today.

The long-awaited report from Kate Barker, an economist who was commissioned by Gordon Brown to investigate how to ease the housing shortage, will recommend an overhaul of the current laws to speed up housing developments and infrastructure projects.

She is also expected to propose fast-tracking small domestic and commercial extensions to ensure that planning authorities can concentrate on larger developments.

The changes, which are expected to be backed by the Chancellor, will be widely welcomed by houseowners who cannot afford to move because of the cost of stamp duty.

Instead they could find it much easier to build a new room or extend their kitchen by merely filling out a form and complying with building regulations. In future if homeowners can agree with neighbours about a party wall or extension in advance, the council will only have to rubber-stamp the application.

Ms Barker is also expected to recommend that businesses, including retailers, can go ahead with small developments and extensions without planning approval unless they are proposing a change of use. At present councils have 650,000 small planning applications a year, which are disproportionately expensive to process.

But rural campaigners fear that her wider recommendations to increase housing and infrastructure projects such as roads and railways will lead to extra development on green belt land.

In an interim report in the summer, Ms Barker argued that many planning applications were being blocked by councils or delayed by the lengthy planning process. She claimed that as many as one in four applications was rejected, up from 13 per cent in the late 1990s. She also argued that too much land, particularly in the South East, was protected from development and should be redesignated to allow more house and road building.

Her report is expected to recommend a new independent commission which will make decisions on all major planning developments. This could cover road and rail projects, nuclear power stations, airports and big housing developments.

Many of these currently get mired down at local level as councils oppose them on the grounds of local factors such as sustainability or congestion.

The new commission would study the application on the grounds of its social economic benefits to the nation rather than the self-interest of local populations. Ms Barker will argue that if a project is of economic and employment benefit it should go ahead, provided it is not outweighed by environmental or sustainable concerns.

Ministers have been concerned that despite rising housing demand, particulary for first-time buyers, many developments are being blocked at district or county level. Once an application is turned down by the council, the Secretary of State can overturn the decision.

In her previous report Ms Barker recommended that an extra 70,000 to 120,000 houses should be built each year.

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Of course.

Council tax is going to be based on what your house is worth.

The more easy it is to improve your home then the more money they can do you for.

This has to be the main reason surely?

I am sure this will the reason they implement it - if they do. It would be a dream come true for councils, all they have to do is record your home improvements, ready to increase your council/property tax next year!

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Scooter,

If you are buying a house at just over £250K - which is a normal family house, it's going to cost you north of £16K of earnings to pay the EA fees and the stamp duty (say £11K net) (assumes 40% taxpayer).

Then you have to pay moving costs and you can also add in Xk for decoration of new place to suit - I don't think you'd get much change out of £20K of earnings for most places. Now what can you do to your own place to improve it for that money.

Take it up to £500K and it starts to get crackers. You either need the stamp duty liquid or to finance it on the mortgage over Y years.

In the SE, imagine say a relatively normal house at £625K, that's £25K in stamp duty - that's £43K of earnings, plus if you are selling at say £500K, that's nearly £10K in agents fees with the VAT at most agents. Gross up that money, and it's £60K you have to earn to move. Even net, it's £40K you lose.

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Of course.

Council tax is going to be based on what your house is worth.

The more easy it is to improve your home then the more money they can do you for.

This has to be the main reason surely?

This is the first thing that came into my head when I saw this reported on the BBC this morning.

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Scooter,

If you are buying a house at just over £250K - which is a normal family house, it's going to cost you north of £16K of earnings to pay the EA fees and the stamp duty (say £11K net) (assumes 40% taxpayer).

Then you have to pay moving costs and you can also add in Xk for decoration of new place to suit - I don't think you'd get much change out of £20K of earnings for most places. Now what can you do to your own place to improve it for that money.

Take it up to £500K and it starts to get crackers. You either need the stamp duty liquid or to finance it on the mortgage over Y years.

In the SE, imagine say a relatively normal house at £625K, that's £25K in stamp duty - that's £43K of earnings, plus if you are selling at say £500K, that's nearly £10K in agents fees with the VAT at most agents. Gross up that money, and it's £60K you have to earn to move. Even net, it's £40K you lose.

The rate of stamp duty on the kind of properties you mention is 4% (over £500,000.) This looks like like a drop in the ocean compared to rises of several hundred percent in asking prices over the last few years. It is clear to me that the problem is the prices themselves, not the stamp duty, although it is obviously more pain on top of bubble pricing.

S.

Edited by Scooter
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This looks like like a drop in the ocean compared to rises of several hundred percent in asking prices over the last few years.

Indeed. I'm going to cry so many tears for someone who's seen the price of their house increase by 300,000 pounds in the last few years and now has to pay 20,000 in tax to move.

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Well I welcome the move - if extensions are encouraged this will help increase the size of the average property thereby increasing supply. Plus, it says 'tough t1tty' to the NIMBIES who oppose planning applications.

Smart homeowners will do their sums as to whether it's cheaper to move house, or to do an extension and pay the extra council tax.

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The rate of stamp duty on the kind of properties you mention is 4% (over £500,000.) This looks like like a drop in the ocean compared to rises of several hundred percent in asking prices over the last few years. It is clear to me that the problem is the prices themselves, not the stamp duty, although it is obviously more pain on top of bubble pricing.

S.

I take it you have not had to pay out that much earnings in stamp duty - it's painful and it really puts people off when they work out that they go to work for months on end to pay it all out in tax. My missus went mental when we worked out she slogged her guts out all year just to pay Gordon..... FYI, where I live prices have not gone up several hundred percent - even in the NW, I only see price rises of that magnitude at the 'bottom' of the market, i.e. where they were sub £60K and are now pushing £180K, £200K and with all respect, £2K makes a lot less difference than £20K - salaries are not going to be 10 times higher. I look at houses priced at that level in the NW, they were £275-300K in 2001, and at best just sub £250K.

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Indeed. I'm going to cry so many tears for someone who's seen the price of their house increase by 300,000 pounds in the last few years and now has to pay 20,000 in tax to move.

If your house has incread by that amount you can gaurentee that the next step up the ladder will have increased even more.

Running to stand still ........

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I take it you have not had to pay out that much earnings in stamp duty - it's painful and it really puts people off when they work out that they go to work for months on end to pay it all out in tax. My missus went mental when we worked out she slogged her guts out all year just to pay Gordon..... FYI, where I live prices have not gone up several hundred percent - even in the NW, I only see price rises of that magnitude at the 'bottom' of the market, i.e. where they were sub £60K and are now pushing £180K, £200K and with all respect, £2K makes a lot less difference than £20K - salaries are not going to be 10 times higher. I look at houses priced at that level in the NW, they were £275-300K in 2001, and at best just sub £250K.

You assume wrong. I have bought twice in the last 16 years, last time 1995 but I remember well enough. I am not saying that stamp duty does not hurt, I am just saying it is a small part of the overall pain of buying an asset that has massively outpaced wage inflation. Where I live (North London), prices have risen several hundred percent, which I have nominally benefited from as an owner but I would rather not have, as in practice to get anything much bigger (which I would like) has me paying well into seven figures, and handing over that sort of cash for a 3 or 4 bedroom flat bothers me even more than paying Gordon.

S.

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I take it you have not had to pay out that much earnings in stamp duty - it's painful and it really puts people off when they work out that they go to work for months on end to pay it all out in tax.

So does having to pay 200,000 pounds for a crappy two-bed terrace in a lousy area... or spending six months a year working merely to pay tax to a government who's priced you out of the housing market and gives similar houses free to dole-scum.

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You assume wrong. I have bought twice in the last 16 years, last time 1995 but I remember well enough. I am not saying that stamp duty does not hurt, I am just saying it is a small part of the overall pain of buying an asset that has massively outpaced wage inflation. Where I live (North London), prices have risen several hundred percent, which I have nominally benefited from as an owner but I would rather not have, as in practice to get anything much bigger (which I would like) has me paying well into seven figures, and handing over that sort of cash for a 3 or 4 bedroom flat bothers me even more than paying Gordon.

S.

Right, so you bought at the bottom - of course it's gone up a lot since then - several hundred percent is probably about right if you bought then - but for most of the country, the price rises have been from prices well below the stamp duty threshold (certainly of those percentages). Plus you are looking backwards - it's easy to justify say £40K of earnings out the door if it's likely to go up by £500K in the next 10 years - but will it - I don't believe it can and if you are moving again (or forced to move) in the medium term, your exposure as a percentage is correspondingly greater.

Put it this way, if you had a 3 bed house in say Muswell Hill and because of kids you now needed a 4 bed house in MH, the moving costs would now be (guesstimate only) £26K of stamp duty and £13,500 in EA fees - or £44K gross earnings to move to a house that's not much bigger and you will still need to do work to make it yours. Instead you can do up your house into the loft for £40K and not have to move and without the hassle and extra financing costs and you only have to increase your presumably small mortgage by that £40K and not by say the £100K a house with an extra bedroom is making (for sake of discussion only obviously).

I am also a bit at a loss as to why a definite lot of money out on day 1 bothers you less than the risk of falling (or maybe stable or rising) prices in the long term - you can plan for them and can take action to reduce your exposure with a bit of foresight - stamp duty you just have to pay up front - you don't get any back if the value falls, put it that way...

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So does having to pay 200,000 pounds for a crappy two-bed terrace in a lousy area

Mmm, I could only afford one bedroom when I started out, you seem to have it easy

or spending six months a year working merely to pay tax to a government who's priced you out of the housing market and gives similar houses free to dole-scum.

Err, me me me.

You know the answer.

Right, so you bought at the bottom - of course it's gone up a lot since then - several hundred percent is probably about right if you bought then - but for most of the country, the price rises have been from prices well below the stamp duty threshold (certainly of those percentages). Plus you are looking backwards - it's easy to justify say £40K of earnings out the door if it's likely to go up by £500K in the next 10 years - but will it - I don't believe it can and if you are moving again (or forced to move) in the medium term, your exposure as a percentage is correspondingly greater.

Put it this way, if you had a 3 bed house in say Muswell Hill and because of kids you now needed a 4 bed house in MH, the moving costs would now be (guesstimate only) £26K of stamp duty and £13,500 in EA fees - or £44K gross earnings to move to a house that's not much bigger and you will still need to do work to make it yours. Instead you can do up your house into the loft for £40K and not have to move and without the hassle and extra financing costs and you only have to increase your presumably small mortgage by that £40K and not by say the £100K a house with an extra bedroom is making (for sake of discussion only obviously).

I am also a bit at a loss as to why a definite lot of money out on day 1 bothers you less than the risk of falling (or maybe stable or rising) prices in the long term - you can plan for them and can take action to reduce your exposure with a bit of foresight - stamp duty you just have to pay up front - you don't get any back if the value falls, put it that way...

Good post.

I agree with all of it.

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Guest Cletus VanDamme

I am also a bit at a loss as to why a definite lot of money out on day 1 bothers you less than the risk of falling (or maybe stable or rising) prices in the long term - you can plan for them and can take action to reduce your exposure with a bit of foresight - stamp duty you just have to pay up front - you don't get any back if the value falls, put it that way...

I agree that stamp duty and EA fees are probably a bigger barrier to trading up than the larger mortgage required to move into a bigger home.

On the other hand, the reason these fixed, up front fees are now so high is because of high house prices.

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Right, so you bought at the bottom - of course it's gone up a lot since then - several hundred percent is probably about right if you bought then - but for most of the country, the price rises have been from prices well below the stamp duty threshold (certainly of those percentages). Plus you are looking backwards - it's easy to justify say £40K of earnings out the door if it's likely to go up by £500K in the next 10 years - but will it - I don't believe it can and if you are moving again (or forced to move) in the medium term, your exposure as a percentage is correspondingly greater.

Put it this way, if you had a 3 bed house in say Muswell Hill and because of kids you now needed a 4 bed house in MH, the moving costs would now be (guesstimate only) £26K of stamp duty and £13,500 in EA fees - or £44K gross earnings to move to a house that's not much bigger and you will still need to do work to make it yours. Instead you can do up your house into the loft for £40K and not have to move and without the hassle and extra financing costs and you only have to increase your presumably small mortgage by that £40K and not by say the £100K a house with an extra bedroom is making (for sake of discussion only obviously).

I am also a bit at a loss as to why a definite lot of money out on day 1 bothers you less than the risk of falling (or maybe stable or rising) prices in the long term - you can plan for them and can take action to reduce your exposure with a bit of foresight - stamp duty you just have to pay up front - you don't get any back if the value falls, put it that way...

I see what you are saying about extending and staying put but it is still not for everybody and if prices were more in line with historical ratios to earnings or notional rent, I suspect most people would move and not have the hassle (PP, managing builders etc) of extending. I just do not think stamp duty is the main issue preventing moving and high prices are. For a hosuing expert to claim otherwise makes me suspicious.

I can do nothing about stamp duty (so getting angry is pointless.) I can do something about when/what I buy and how much I pay(although I cannot fight the market) . In practice I am bearish on prices and I expect to be looking still in a year's time but you never know.

S.

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I see what you are saying about extending and staying put but it is still not for everybody and if prices were more in line with historical ratios to earnings or notional rent, I suspect most people would move and not have the hassle (PP, managing builders etc) of extending. I just do not think stamp duty is the main issue preventing moving and high prices are. For a hosuing expert to claim otherwise makes me suspicious.

I can do nothing about stamp duty (so getting angry is pointless.) I can do something about when/what I buy and how much I pay(although I cannot fight the market) . In practice I am bearish on prices and I expect to be looking still in a year's time but you never know.

I agree there is a split from historical averages, but I think that a straight return to 3 times is not realistic - you need to model in the effect of both sexes properly in the workplace in large numbers, you need to model in lower interest rates and the effect they have on ability to service debt (I know about the risk, I just wish lots of other people thought they could go up a lot too.... :) ).

I also agree that stamp duty is about taxation - Brown has not got a pot to p1ss in and fiscal drag and BS may get him elected, the issue is how long he can keep it going until the debt burden on a shrinking taxpaying population can be shouldered without either complete destruction of the UK's finances or them being voted out - I see GBrown and I see Enron style transactions which are short term fixes with massive long term implications (both financial and social).

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I agree there is a split from historical averages, but I think that a straight return to 3 times is not realistic - you need to model in the effect of both sexes properly in the workplace in large numbers, you need to model in lower interest rates and the effect they have on ability to service debt (I know about the risk, I just wish lots of other people thought they could go up a lot too.... :) ).

I also agree that stamp duty is about taxation - Brown has not got a pot to p1ss in and fiscal drag and BS may get him elected, the issue is how long he can keep it going until the debt burden on a shrinking taxpaying population can be shouldered without either complete destruction of the UK's finances or them being voted out - I see GBrown and I see Enron style transactions which are short term fixes with massive long term implications (both financial and social).

Certainly loose liquidity has a lot to do with prices since 2001. But interest rates are rising here in the UK, in the Euro Zone and possibly further in the US, where Bernanke still says he is worried by inflation (i.e. they are not falling and may rise). Broadly, when cost of money rises, asset prices fall. At the peak of a bubble, most people do not think it can do anything but inflate further but they usually not only revert to mean but overshoot on the downside. You may be surprised by how quickly a bubble can burst but look at some of the housing reports from the US recently.

S.

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Broadly, when cost of money rises, asset prices fall. At the peak of a bubble, most people do not think it can do anything but inflate further but they usually not only revert to mean but overshoot on the downside. You may be surprised by how quickly a bubble can burst but look at some of the housing reports from the US recently.

I do private equity as a day job - the funds are still awash with money they are bound to spend - they are taking on some pretty scary EBITDA multiples that simply don't work for interest rates 2 full percent where they are now..... - the banks have to lend it if the bankers want their bonuses, it's still a borrowers' market - which is worrying.....

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In 2001 I could have bought my house on 3.5 x my income, today I would need 8x to buy. ( If I was still working ) :blink:

and with a cold head on - was it cheap at 3.5 times in 2001 - maybe with mortgage interest cheaper than rent. Plus I presume you did not buy it in 2001 - would you have done at 3.5 times - ignoring the hindsight about rocketing prices you now have.

Assuming you had wage inflation in the meantime, what do you think would be an appropriate multiple for someone on the same wages as you would be today to buy it - would you sell it for that :) ?

Prices surely must end up with an approximation of rent=mortgage interest - that's a good barometer of supply and demand (though I know it's not 100%...) - as it is, most non-DSS rentals don't get close on today's 'values' - which is why I think there has to be a hit somewhere and I don't just mean the idiots who are still buying identikit exec apartments in non-executive areas with money taken out of their house.

Edited by Rachman
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Guest Charlie The Tramp

and with a cold head on - was it cheap at 3.5 times in 2001 - maybe with mortgage interest cheaper than rent. Plus I presume you did not buy it in 2001 - would you have done at 3.5 times - ignoring the hindsight about rocketing prices you now have.

Assuming you had wage inflation in the meantime, what do you think would be an appropriate multiple for someone on the same wages as you would be today to buy it - would you sell it for that :) ?

Considering they were selling for £120k in 1990 I suppose you could say it was cheap, but to the young couple with 3 children who moved next door in 2000 from their FTB 2 bed it was still very dear for a Printer earning £20k + overtime who borrowed £80k at 7%.

Today with some wage inflation I would say at least 7x earnings. I bought for cash in 1984 but I based my figures on a 100% mortgage if I was going to buy with a mortgage in line with the majority of house buyers.

The biggest shock for me was that it took 10 years to recover to its 1990 price.

In 2000 a similiar property in Inner London East was 2/3 the price in comparison to my property, today they are level. So buyers must decide do they want to buy in an area of high crime or a peaceful area where the air is fresh and just a few miles away.

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