A rise in stamp duty would rapidly reduce the supply of homes to the market says David Adams, country offices sales director of Hamptons International.

This is because at present the stamp duty ‘cost’ of moving home is finely balanced at around the same cost as extending a home.

Currently it costs approximately £33,000 to sell and buy properties at £500,001, with stamp duty accounting for £20,000 of this sum. This is approximately the same cost as an attic or basement conversion or the addition of a conservatory. So things are very finely balanced.

Says David Adams: “Should stamp duty rise, it will become cheaper to create more space in an existing home than it would to move to a larger home.”

“Under this scenario I would predict a rapid fall in the volume of houses coming to the market between £500,000 and £700,000, where there is already a shortage of homes.”

The effects would be two-fold:

• To reduce the number of properties sold right down the property ladder, because with less to choose from more home sellers would not be able to find homes to which to upgrade to and they would stay put.
• To cause prices to spiral upward, as indeed they did when stamp duties where first introduced.

Hamptons' predictions for the 2004 UK market

“As long as interest rates do not rise by more than 1% I believe that there is potential for a 7% rise in house prices next year,” says Adams “I predict this as a result of the reducing supply of homes and increasing demand from purchasers. To put this in perspective, we saw a 10% fall in house prices in the first half of 2003. A 7% increase will therefore not even take the market back to where it was in 2002.”

“However, a rapid rise in interest rates greater than 1% would reduce demand for homes and prices would simply hold.”

Hamptons London regional director, Marc Goldberg said: “We predict price growth in London of around 5% in 2004.”

“It is likely that the strongest growth will be in the prime areas, having suffered the most in 2003. Healthy demand seems set to continue into next year.”

“Most economic commentators are not expecting the base rate to rise beyond 4.5% by the end of next year, and this marginal increase is unlikely to affect the high levels of demand to any significant degree. There is also likely to be a return of investors to the market, given the acceptance that prices have 'bottomed' and capital growth can be expected.”