Market Commentary - June 2000

Spring is gone and winter is just a distant memory. Estate agents say the "House-buying Season" begins at easter but although 2000 was shaping up to be a bumper year around the chocolate season it has now slowed considerably. The strong growth in house prices in London and the South-East has slowed a little, but the north-south divide is still pretty evident: In parts of London, SW1 the average selling price for a flat is about £420,000 whereas in parts of Newcastle, the average selling price for a house is about £10,500!

Volumes of house sales were up last year and look likely to be higher this year. There is still a long way to go before either the price rises or sales volumes hits the heady heights of the late 1980's - but it is certainly a possibility.

My view is the same now as it was then - before taking the plunge with such a big decision as buying a house, you need to step back and take a long, hard look at the numbers. You may love the garden, the schools are great and you could even live with the 1970's avocado bathroom - but what would happen if interest rates rose to 10% or more and house prices stagnated? If the answer is "I'd drink draught beer instead of bottled - and maybe not go out for a pizza every week." - then great. However, if the answer turns out to be that you couldn't pay the mortgage and couldn't afford to move, you might do well to rethink.

Many people can get carried away with 'getting on the housing ladder', for reasons such as:

"Prices are shooting up and if I don't buy now, the only thing I'll be able to afford is a garage in South Shields"

or

"By the time we want to move again, the value of the house will have doubled and we could get something really nice in the country"

Both these comments are perfectly good reasons if you're certain that prices in the area you want are going to spiral upwards.

Stamp Duty

As widely predicted the Chancellor increased Stamp Duty in the budget, but not by as much as was expected. Rates on houses valued between £250,000 and £499,000 increased from 2.5 per cent to 3 per cent. Rates for houses valued at £500,000 are now at 4 per cent, up from their previous level of 3.5 per cent. Duty did not change for houses between £60,000 and £249,000, set at 1 per cent and zero per cent for houses below £60,000. More information is available on the FT's budget pages

Property Value	Stamp Duty was	After the budget	Increased costs
Less than £60,000	Nil	Nil	Nil
£60,000 to £249,999	1%	1%	Nil
£250,000 to £499,999	2.5%	3%	£1,250 to £2,500
£500,000 or more	3.5%	4%	£2,500 or more

Stamp Duty is paid at the specified rate for the whole amount so while you would £900 stamp duty on a £60,000 property, if you can negotiate the price down a few quid, you would pay nothing! There are a few things you can do ease the burden:

• If the asking price is close to the threshold simply offer a bit less. Peter Mandelson paid just less than £250,000 for his flat in Notting Hill, saving £3,700 in stamp duty
• Look at the fixtures and fittings - and pay for them separately. If items such as carpets, curtains etc are included in the price you can take them out of the purchase price that is used for calculating stamp duty. There are two things to bear in mind - the items must really exist and the values must be reasonable. The Inland Revenue will take a dim view of people taking £60,000 off the purchase price for a pair of curtains and a cheap wardrobe
• Move to Newcastle!

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