The Nationwide House Price Index has revealed that in March the average price of a UK house rose from £162,712 to £163,327. When these figures are seasonally adjusted, this represents a 1% fall from February. This is a 0.9% drop compared to March 2011.
Robert Gardner, Chief Economist at Nationwide commented:
“A slowdown was to be expected, given the imminent expiry of the stamp duty holiday which had provided a temporary boost to house prices in early 2012 as buyers brought forward purchases that would otherwise have taken place later in the year.”
Nationwide figures state that around 180,000 first time buyers took advantage of the stamp duty holiday during the two year period from March 2010. The Building Society suggests that the expiry of the tax relief will have a dampening effect on the market. It is estimated that 65% of first time buyers will pay stamp duty, to the value of £600 million in tax revenue over the next fiscal year.
Estimates by Nationwide suggest that in the next fiscal year around 100,000 first time buyers will pay stamp duty on properties costing between £125,000 and £250,000. This will add an average extra £1800 on the purchase price for these buyers. This is a considerable amount and may well have a dampening effect on the market.
It is also suggested that the new 7% stamp duty payable on properties purchased for over £2 million will have a dulling effect on the market. However, this will be a smaller issue as the values of the properties means this will not affect many purchases. Nationwide states that in 2010 only 4,000 properties of this value were sold. This figure equates to 0.5% of residential property transactions. They estimate using this level of transactions that the 7% rate will lead to an extra £160 million in the next financial year.
Robert Gardner added that:
“This dampening effect on housing market activity and prices may fade over the course of the summer, especially if the wider economic outlook begins to improve and other policy measures, such as the Government’s NewBuy scheme are successful in supporting buyer demand.”
The NewBuy scheme is designed to help promote the sales of new build properties. It does this by guaranteeing deposits so that the purchaser needs a smaller deposit to get a mortgage. Nationwide believes that this scheme has the potential to boost housing demand, which is needed as current levels of housing building activity is not enough to meet demand.
Robert Gardner concludes that “…the challenging economic backdrop is likely to continue to act as a drag, with house prices moving sideways or modestly lower over the next twelve months.”
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