Homebuyers benefit from stamp duty freeze » Housing » 24dash.com

The proportion of homebuyers who did not have to pay stamp duty doubled during September after the Government raised the threshold at which the tax kicks in, figures showed today.

The Council of Mortgage Lenders said 51% of buyers did not pay the tax during the month, up from 22% in September last year.

But the initiative failed to stop the number of new mortgages taken out for house purchase slumping to a new record low.

Just 35,000 mortgages worth £5 billion were taken out by people buying a home during the month, 15% less in terms of both volume and value than in August and less than half of September 2007's level.

The number of people taking their first step on to the property ladder also more than halved compared with September last year, to hit a new low of 13,400, although first-time buyers represented 38% of all buyers, up slightly from 36% during the previous month.

The figures cover the first month of the Government's stamp duty initiative, under which the threshold at which the tax kicks in was increased to £175,000 for one year in a bid to help people struggling to buy their first home.

CML director-general Michael Coogan said: "While house purchase activity has reached exceptionally low levels, it is encouraging to see transaction costs lowered for a larger proportion of borrowers.

"The Government should consider what other measures can be brought forward to enable the market to transact more easily."

First-time buyers borrowed an average of £104,500 during the month, down from £108,000 in August and a peak of £119,250 in July last year.

The lower mortgage amount helped to bring down the average income multiple borrowed by a first-time buyer to 3.18 times their pay, its lowest level since March 2006.

The figures come as data from the Royal Institution of Chartered Surveyors showed that estate agents sold an average of just 10.9 properties each during the three months to the end of October.

Meanwhile, the Department of Communities and Local Government said house prices lost 5.1% of their value during the year to the end of September as the market continued to be hit by the credit crunch.

The number of people remortgaging during September also hit a new low of 62,000, according to the CML.

This was 15% less than during August, but only a third lower than in September last year.

Many people are failing to remortgage when they come to the end of their current mortgage deal, either because they do not have enough equity in their property to qualify for one of the best deals, or because they are sitting tight in the hope that interest rate cuts will bring mortgage rates down.

Last week's surprise 1.5% interest rate reduction by the Bank of England will help reduce mortgage rates for existing borrowers, with many of the major lenders announcing they would be passing on the full cut following pressure from the Government.

But so far only Abbey has said how much of the reduction will be passed on to new borrowers, with other lenders sitting on their hands while they wait to see what happens to the inter-bank lending rate Libor.

Mr Coogan said: "Banks and building societies do want to support homeowners, but they have limited funds available and are, quite reasonably, taking a prudent approach to risk.

"If the pricing and volume of inter-bank lending continues to improve, this should help the flow of mortgage lending."