U.K. mortgage lender Nation- wide last week pled with the government to raise the stamp duty threshold for first-time buyers. As it stands today, soaring house prices means the number of first-time buyers required to shell out the additional tax cost has risen by 10% to 75% over the last 10 years.
According to commentary from JPMorgan Securities, the maximum duty-free threshold is currently set at GBP60,000 (US$108,184), and more than 75% of new buyers are now hit by the tax, given the rapid rise in U.K. house prices over the past decade. It translates to an average of GBP1,000 (US$1,802) in stamp duty added to the already steep costs buyers have to consider.
"The incentive for new homebuyers will be that they don't have to pay the stamp duty," said one market source. "The proposed increase was to GBP150,000 (US$207,402), probably an insufficient amount to actually provide incentive for a purchase (i.e., house prices are keeping first-time buyers away, not the stamp duty)."
According to Nationwide reports, 10 years ago fewer that 20% of first-time buyers throughout the majority of U.K. regions were required to pay the tax; now a majority of buyers are looking at properties above the GBP60,000 (US$108,184) threshold.
"New net mortgage volumes are expected to slow, but that will depend in part on house price growth," said one market source. "There is still the case to be made for heavy remortgaging of back books' into discount and teaser rates."
The Royal Institution of Chartered Surveyors (RICS) and the Council of Mortgage Lenders estimated that the number of first-time buyers entering the market nationwide fell by 37% since 2001. Buy-to-let owners are picking up the slack in the meantime.
On a positive note, RICS concluded in its Feb. 23 report on the European Housing market that Europe has performed much better than national economies despite the world economic slowdown over the recent years. According to the Council of Mortgage Lenders, late-stage arrears in the U.K. buy-to-let market remain lower than that experienced by the broader U.K. mortgage market, and the housing market shows little signs of slowing with Halifax estimating year-on-year house prices growing at 17.8%.
"Covered bonds and Basel 2 represent bigger threats to securitization volume than the slowdown in first-time buyers' market," said one market source. "I always think it is important to note that the securitization growth in the U.K. and Europe is not driven by a refi wave in the same way as the U.S. For the most part, issuers are securitizing their outstanding book. I believe Northern Rock is only lender using securitization for funding growth."