Increase in stamp duty unlikely to have major long-term effect

THE Government's decision to increase stamp duty from 6 to 9 per cent on second-hand houses costing over £150,000 is expected to slow down the auction property market in the early part of next year but is unlikely to have any significant long-term effect.

The higher tax is almost certain to hit hardest in the middle price range, now considered to be between £150,000 and £250000. The stamp duty on a house selling for £200,000 will increase from £12,000 now to £18,000 under the new 9 per cent rate.

Young couples who normally trade up from their first homes may be reluctant to do so initially but with mortgages freely available and interest rates at their lowest for 20 years, the higher stamp duty will inevitably be accepted as another arbitrary charge on housing.

While the immediate effect will be fairly severe for some house purchasers, they will at least know that they will no longer have to pay the annual Residential Property Tax following the Government's decision to abolish it from next year.

The extra stamp duty will have little or no effect at the top end of the market, where the demand for the most expensive houses has never been stronger. Last year, 30 houses sold at auction for in excess of £500,000.

In 1996, 449 houses in the greater Dublin area sold at auction for over £150,000. At least 100 more were disposed of by private treaty. It is estimated that second-hand house prices generally rose by up to 20 per cent during the past 12 months.

The sharpest increase in values was for three and four-bedroom family homes located in mature south Dublin suburbs.

The announcement of the higher stamp duty comes at the end of one of the most buoyant selling seasons on record. More than 1,300 Dublin houses were auctioned during the year, underlining the confidence of the marketplace.

Developers who normally build large expensive apartments and houses are likely to opt for smaller units because of the decision to apply the higher tax to new homes costing over £150,000.

Mr Tom Day, of Lisney, last night described the higher stamp duty as "absolutely draconian". The higher stamp duty would apply to thousands of houses in south Dublin, both detached and semis. He believed the increased stamp duty was an anti-Dublin tax which would be more severe than the Residential Property Tax.

Mr Mark FitzGerald of Sherry FitzGerald described the higher stamp duty as a crude move which would reduce mobility among families.