Rates of stamp duty are presently zero on values below €125,000, 7% on the next €875,000 and 9% on the balance above €1m.  In today’s budget, it was announced that the rate of stamp duty on residential property will be reduced to 1% on all properties valued up to €1 million, and 2% on the balance above €1m.  All stamp duty reliefs and exemptions on residential property are to be abolished with immediate effect (I can’t see anything on stamp duty on land, so assume these remain as is).  Abolitions include:

  • First time buyer relief
  • Exemption for new houses under 125 sq m in size
  • Relief on new houses over 125 sq m in size
  • Exemption for residential property transfers valued under €127,000

New and secondhand properties, regardless of size and price, are now liable to stamp duty for all buyers.

For first time buyers a new barrier to entry has been put in place.  On a property costing €250,000 they will have to pay €2,500 stamp duty.  Not an insignificant sum given they will also need a need a minimum of a €25,000 deposit given no lender is offering above a 90% mortgage, plus solicitor and other fees (this is more than off-set by the drop in the value of the property they are purchasing, the issue though is immediate cash in hand for a new additional expense).  For developers seeking to sell brand new properties, stamp duty is also now liable, again also potentially placing an additional barrier to sale (though again drops in prices off-set this).

For secondhand sellers and buyers the situation is a little different, with a significant reduction in the amount of stamp duty liable.  For a house valued at €250,000, stamp duty drops from €8,750 to €2,500, a significant saving.

Is this likely to get the housing market moving?  For those looking at trading up or down then the changes may well get things moving, especially at properties valued at over half a million where stamp duty costs were prohibitive (for example, a house costing €1m incurred €61,250 stamp duty; it’ll now cost €10,000).  The big issue for this group is whether they are in negative equity and therefore feel able to trade down if desired in order to reduce their overall level of debt.  For those outside of negative equity, with prices falling the price gap for trading up might remain relative in percentage terms but lowers in real terms and thus becomes more affordable.  For example, a household’s own house might have fallen 40% in value from 300K to 180K, but the house they are interested in buying has fallen 40% from 500K to 300K, with the difference dropping from 200K+26K stamp duty to 120K+3K.

The stamp duty changes then will potentially get some of the market moving into both new and secondhand homes – those that are already home owners and are not in negative equity – it will potentially slow down, however, first time buyers from entering the market (despite the increased affordability of property overall).  The big question and uncertainty for buyers, however, is the forthcoming site-property tax and how trading up might be affect household expenditure on an annualised basis, rather than a one-off payment.  For the property market to really get going – other than the economy starting to recover, people returning to work, and credit starting to flow – potential buyers will need to know where they stand with respect to future property tax payments.

Rob Kitchin