Under the current system stamp duty is charged slab-style, so once a threshold is passed, a percentage must be paid on the full property price.
For example, a buyer purchasing a £249,000 flat would pay one per cent on their purchase, handing £2,490 to the taxman, but a buyer paying £251,000 would pay three per cent, which equates to £7,530.
Campaigners have called for stamp duty to be reformed to become a marginal-style tax such as income tax, where the higher rate is only paid on the amount above the threshold. Other options include raising the thresholds in line with property inflation.
According to Halifax, if the higher thresholds had been increased in line with house-price inflation since 1997 - when the £250,000 and £500,000 thresholds were introduced - the £250,000 threshold would now stand at £650,000, while the £500,000 would be £1.3 million.
Fledgling buyers pay up
The problems facing first-time buyers were highlighted by a Council of Mortgage Lenders report showing that 58 per cent paid stamp duty in April – compared to 51 per cent in the same month a year earlier.
The growing number of first-time buyers forced to pay at least £1,250 in stamp duty is despite the threshold being raised from £120,000 to £125,000 in April 2006.
The problem is most acute in London and the surrounding area, where properties costing less than £125,000 are extremely scarce and agents have reported a leap in the number of first-time buyers paying above the £250,000 stamp duty threshold. This has led to increasing amounts of new buyers having to find at least £7,500 to pay in tax, in addition to borrowing larger sums.
Research by comparison website Moneyexpert.com has shown the difficulties facing first-time buyers in saving up for a deposit and stamp duty, which has led to the number of 100 per cent mortgages more than doubling in the past year, from 60 to 127.
Sean Gardner of Moneyexpert.com says: "Often it’s the youngest applicants who are worst affected by high interest rates as getting onto the property ladder becomes more difficult."
High house prices and the ratcheting up of the Bank of England baseb rate to 5.5 per cent also mean that first-time buyers are paying out the biggest chunk of income on mortgage interest repayments since 1992 – when the bank rate stood at 10 per cent.
The CML says the proportion of first-time buyers' incomes paid out on mortgage interest rose to 18.7 per cent in April, although this remains considerably below the 27 per cent of income needed in 1990, at the peak of the last housing boom.
Rapid house-price growth over the past year has seen the cost of the average home rise by 10.6 per cent to £196,893, according to Halifax's house price index. Over the same period, the average London home has risen in value by 14.9 per cent to £297,132.
However, recent figures from Halifax, Nationwide and the Royal Institution of Chartered Surveyors have shown growth starting to tail off as a result of the Bank of England’s four rate hikes since last August.
Helen Adams, of first-time buyers' campaign group First Rung Now, says that while potential home-owners will welcome a slowdown, it may also benefit the property investors they are competing against.
She says: "This is good news as it makes properties slightly more accessible to first-time buyers - but also to buy-to-let investors. The Government could do more to help aspiring first-time buyers by disincentivising the buy-to-let landlords, helping first-timers with stamp duty and providing more housing for key workers."
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