A lender wants the government to do one thing that could really hurt the UK housing market

Britain needs more houses in order to sate demand and calm down the exponential rise in prices.

But a major UK building society is suggesting the government make a change that could restrict housing supply even further and therefore make competition to buy a home even tougher.

The Yorkshire Building Society told The Times newspaper that the government should change stamp duty rules again and make the seller of the home pay the fee, rather than the buyer, in order to stimulate purchases.

It also said that first-time buyers should be exempt from stamp duty, so they can get on the ladder.

“This policy would eliminate one of the many barriers for people trying to get on to the first step of the property ladder,” Andrew McPhillips, chief economist at Yorkshire Building Society, told The Times.

“Theresa May said in her first few speeches as prime minister that the younger generation have had it harder than any other previous time to get into the housing market, so we feel this is a timely proposal to make.”

Stamp duty is a tax placed on buyers when they purchase a property in the UK. It is payable on completion of the property and under the new system, introduced in April, works out at an extra £93,750 if you’re buying a property at £1.5 million, according to the government’s stamp duty tax calculator. However, if you’re buying a property for £5 million, you’ll be forking out £513,750 just in stamp duty fees.

If you own more than one property, a 3% stamp duty is applied. This new fee also came into force in April and is applicable to buy-to-let investors and those who are buying a second home. This 3% fee is on top of the extra cost of a new purchase in April.

Why getting home sellers to pay for stamp duty would be terrible

On the surface, Yorkshire Building Society’s suggestion looks pretty valid. After all, stamp duty changes have hurt property sales since April. But as Business Insider has repeatedly pointed out, the fall in sales is mainly for homes worth over £1 million, where the buyers are wealthy and will not have a huge problem paying extra taxes.

Asking sellers to pay for stamp duty could pose a huge problem for the already constrained housing supply — the key reason why house prices keep rising.

Data from the National Housing Federation shows there are 1.5 million UK homeowners aged 85 and they “own more of the nation’s housing wealth than everybody under 35.” As BI pointed out, young people now have to wait until people die in order to get a home.

The older generation were lucky enough to buy during a time of cheaper property. Latest data from the Office for National Statistics shows that house prices rose to £217,000 in July 2016, from around £150,000 in 2005.

Making home sellers pay for stamp duty could put people off selling their house. For example, if you are a pensioner and you want to sell your home to downsize and give family members an inheritance, it would make more sense to just pass the house on to someone via a will or by changing the names on the deed. Therefore you avoid stamp duty taxes.

If this does happen, it is likely then to lead to rafts of people just passing down assets like homes, instead of selling up and moving on, and giving others a chance to get on the housing ladder.

Britain’s housing supply is so constrained and prices so high that the number of people able to afford their own home, especially among the younger generation, is dwindling.

The National Housing Federation (NHF) says that Britain needs to build 250,000 new homes a year in order to sate demand and therefore stop runaway house prices. But only around half this amount is being constructed, so do not expect a glut of new housing supply to hit the market anytime soon.

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