Fourth rise in housing purchase tax during this parliament

The chancellor attempted to take the heat out of the booming housing market by announcing the fourth increase in stamp duty since Labour came to power.

The widely anticipated increase will only affect only those properties sold for more than £250,000, prompting the National Association of Estate Agents to dub it "a tax on home-movers in the south". The increase of half a percentage point is aimed at putting the brakes on the property boom in London and the south-east, where prices in some areas have soared by more than 30% in a year.

From next Tuesday the rate of duty on properties costing from £250,001 to £500,000 will rise to 3%, while for properties sold for £500,001 or more the duty goes up from 3.5% to 4%. For properties costing between £60,000 and £250,000, the duty remains unchanged at 1%. Below £60,000 sales are free of stamp duty.

The increase means that someone buying a home costing £300,000 - less than the price of an average detached house in London - will see their stamp duty bill rise from £7,500 to £9,000. For a property costing £500,001, the duty paid increases from £17,500 to £20,000.

With the increase less than many had expected, mortgage lenders, estate agents and other commentators declared that it would do little to damp down soaring prices. Some warned that it could in fact lead to even higher prices at the top end of the market by discouraging owners of more expensive properties from putting these up for sale, thereby reducing supply.

Hugh Dunsmore-Hardy at the National Association of Estate Agents said he was disappointed the chancellor had again chosen to hit the southern half of the country, adding that the increase did not sit comfortably with the government's aim of making house-buying and selling easier.

Meanwhile Simon Knight, at Independent Mortgage Collection, the home-loan brokers, said that the past two or three years illustrated there was clearly no link between stamp duty and people's desire to get into a property.

"Since 1997 we have seen stamp duty go from 1% to 4% on £500,000-plus properties," he said. "At the same time we have seen property prices surge more than ever."

The new rates coincide with the abolition of mortgage interest tax relief (Miras), which takes effect next month and will add more than £230 a year to mortgage payments for millions of people with home loans of £30,000 or more.

They also come in the wake of four mortgage rate increases since the autumn which together have added £32 to the monthly bill of someone with a £60,000 housing loan.

Mr Brown said 95% of house purchases would be unaffected by the stamp duty increase, which is nevertheless expected to raise £325m in 2000-01, £370m in 2001-02, and £440m in 2002-03.

However, the Council of Mortgage Lenders claimed that the increase would lead to increased distortions in property prices. For example, one home-mover buying a £249,000 house would pay duty of £2,490 while another whose property costs £251,000 will now pay £7,530.

The CML described stamp duty as "a tax on mobility" which is at odds with the needs of a modern economy based on flexibility and a highly mobile workforce.

In some parts of London, £250,000 is not even enough to buy a flat. In Kensington and Chelsea, the average price of a flat is £302,000, according to recent Land Registry data.

Michael Quinlan, tax partner at PricewaterhouseCoopers, spoke for many when he said the increase was "less of a tweak than we feared" - many commentators expected to see the rate for homes costing more than £500,000 upped to 5%. He added that homebuyers who can complete before next Tuesday would escape the new higher rate.

Anthony Davis at Ernst & Young said that the increase amounted to "making very rich people pay very slightly more for their properties".