As the moratorium closes for the UK’s land stamp tax, the Council of Mortgage Lenders estimates the cost to the government will be just under £500m ($793m) with exempt transactions varying across the country.

The UK imposes the land stamp tax on mortgagees and varies depending on the purchase price of the home. In September 2008, the government temporarily raised the 0% tax rate from £125,000 to £175,000 capped the rate for homes purchased for more than £500,000 at 4%.

When the threshold was raised, CML estimated that the proportion of homebuyers who would not have to pay would raise from 25% to 50%. But at its peak in Q109, 57% of those buying a home did not have to pay. As home prices crept upward and more consumers bought higher-valued properties, the proportion dropped to 51% in Q309.

Areas with lower house prices saw the greatest benefit, according to CML. With the higher threshold in place, 75% of transactions in the North were exempt from the duty.
Contrastly, London saw much less benefit. Before the threshold was raised, 2% of transactions were exempt. When it went up, only 17% avoided paying the tax. In the UK, London accounts for 13% of home purchases but only 6% of those exempt the stamp tax.

While transactions seemed to be spurred by the moratorium, more borrowers in the UK tightened their housing equity withdrawals (HEW). The Bank of England estimates the total HEW in Q309 at a -£4.9bn, implying that individuals injected £4.9bn into housing equity in the quarter.

When the measure to raise the threshold was introduced, the UK Treasury estimated the cost to be £615m. Even after the moratorium was extended to December 2009, the CML estimates it would cost £356m in the first 12 months. Forecating through the end of the year, the CML anticipates a price tag just under £500m.

“The CML continues to believe that fundamental reform of stamp duty is necessary,” according to the CML’s report. “While abolition would be the best option, a move to a graduated structure would be an improvement on the current system, even if done on a cost-neutral basis. While the temporary concession was welcome as far as it went, it is disappointing that the government has not sought to implement this desirable reform of an anachronistic tax.”

Write to Jon Prior.

The US Department of Housing and Urban Development (HUD) removed the 1% origination fee cap on loans insured by the Federal Housing Agency (FHA), according a mortgagee letter sent out this week.

HUD made the change to remain consistent with the Real Estate Settlement Procedures Act (RESPA), which will require mortgage lenders to disclose to borrowers a single origination fee on the Good Faith Estimate (GFE) and the HUD-1 Settlement Statement. The regulations go into effect Jan. 1, 2010 and have software developers scrambling to fit in the updates before the deadline.

Under RESPA, the single origination charge on the GFE and HUD-1 must include all administrative and processing fees related to the origination of the loans, including compensation for both the mortgage lender and broker. HUD recognized the bundled charge would exceed the 1% cap, according to a statement from the law firm K&L Gates.

To match the changes of FHA regulations, HUD will no longer limit the amount of the origination fee charged to FHA borrowers.

FHA lenders shouldn’t get too excited about unlimited origination charges.

The FHA will expect lenders to charge “fair and reasonable” fees and will monitor them to ensure FHA borrowers are not overcharged, and FHA commissioner David Stevens intends to issue additional guidance on fee limitations, according to the letter.

“Don’t be surprised if this additional guidance is released in early 2010 and results in a percentage cap on the overall amount of fees that can be charged to the FHA borrower,” according to the statement from K&L Group. “For now, however, HUD's deregulation of the 1% origination fee cap is welcomed news for FHA lenders ready to comply with RESPA's new disclosure requirements.”

Write to Jon Prior.

Home prices in the UK climbed 5.9% in 2009, according to a report from the Nationwide Building Society.

The average price of a home in the UK landed at £162,103 ($257,105) to end the year with an 8.9% rebound from their lowest point in February 2009, according to Martin Gahbauer, Nationwide’s chief economist.

Prices in the UK climbed another 0.4% in December, continuing a recent trend in steady month-on-month growth, but the growth seen in the rolling three-month trend dropped from 2.8% in November to 2.1% in December as prices increase more moderately than in the summer, Gahbauer said.

“Few could have foreseen this development at the start of the year, when the near term price
trend was still pointing to a repeat of the double digit annual decline experienced in 2008,” Gahbauer said.

The UK has endured the worse recession since WWII as housing prices dropped 65% from its peak in January 2009 to November 2008. Demand rose at the start of 2009 as the government provided land stamp tax relief to borrowers and as interest rates hit record lows.

“The re-entry of cash rich buyers into the market coincided with an extremely low supply of property available for sale, as low interest rates limited the number of distressed sales and a significant number of home movers decided to offer their properties for rent rather than sale.  This restriction in supply meant that even a relatively modest pick-up in demand was able to put upward pressure on house prices,” Gahbauer said.

Looking ahead to 2010, Gahbauer anticipates that the Bank of England will not raise interest rates until at least the second half of 2010. However, if the British pound continues to slip and inflation grows, interest-hikes could come sooner, according to Gahbauer. He’s also uncertain if the “cash-rich” buyers can support the housing demand. Despite signs of loosening credit lines, they remain tighter than before the downturn.

“At this stage, therefore, it seems likely that 2010 will see no significant house price movements in either direction. However, the experience of 2009 demonstrates how unpredictable the market is at the current juncture and that one should always be prepared for the UK housing market to surprise,” Gahbauer said.

Write to Jon Prior.