Call for stamp duty change in UK to boost residential property market
It is almost certain that the UK Chancellor Philip Hammond will address issues in the property market in his autumn statement later this week with stamp duty and landlord tax being flagged as needing reform by the real estate industry.
The latest plea for change comes from estate agents Stirling Ackroyd. Head of residential development Nick Davies says that stamp duty must be cut to get the property market going again after a Brexit lull.
In particular agents believe that it is necessary to cut stamp duty at the higher end of the market which in London has been hard hit and seen prices and sales fall due to stamp duty change a couple of years ago rather than Brexit.
The analysis by Stirling Ackroyd suggests that the top 25% of London properties have seen their house prices cut by 5.4% since the second quarter of and house prices for the top 25% also fell by 1.5% on the previous quarter in the second quarter of 2016, directly following the introduction of the 3% stamp duty surcharge on second homes in April 2016.
The data shows that stamp duty, rather than Brexit, is holding back the top end of the London property market with the introduction of a graduated rate across five price bands and increased stamp duty on properties priced at over £1,125,000, having had a significant effect.
A property in the top band priced at £2 million would have cost a buyer £100,000 in stamp duty before the changes were brought in, but would now cost £153,750 in tax. If the same £2 million property is being bought as a second home, this would now cost £213,750 in stamp duty, more than twice the bill a second home buyer would have paid in 2014.
Kensington has been one of the areas hardest hit by stamp duty reform. West Kensington saw prices drop by 12.3% between the second quarter of 2015 and the second quarter of 2016, knocking over £160,000 off the value of the average home in the area.
A buyer purchasing a second home at the average price for properties in the W14 postcode in 2014 at £1,462,200 would have paid £73,100 in stamp duty. A second home property at the same price would now cost £133,800, an increase of £60,700 or 83%. Nearby Kensington High Street also saw average prices fall 6.2% in the year following the introduction of the reforms, with the average property now costing £1,713,000.
The research also points out that between the second quarter of 2015 and the second quarter of 2016, the period when the first set of stamp duty reforms were introduced, house prices for the rest of the market shot up by 7.8%, taking the average house price for the bottom 75% of properties from £441,000 to £475,500.
Although the government’s reforms cut the cost of stamp duty for properties valued at less than £1,125,000, the slowdown in the market at the top end has contributed to a lack of supply in the middle of the market, causing price increases for the majority of London buyers, the report adds.
‘Targeting top end buyers of properties valued at over £1 million might have been good politics at the time, but the policy is crippling prime central London, with potentially damaging consequences for the capital’s property market down the road. Most Londoners are unlikely to weep for wealthy second home buyers, but the reality is that without movement at the top, the middle and lower end of the chain are being blighted by a shortage of available properties, leading to intense competition and spiralling prices,’ said Davies.
‘Higher income families are holding on to their homes rather than move up, while buy to let investors have all but disappeared, which in time will have a similar effect on the rental market,’ he explained.
‘We’ve seen some renewed interest from foreign buyers since the fall in the value of the pound, but we mustn’t be complacent, as the market is incredibly sluggish since the vote earlier this year. Domestic buyers remain worried about whether values at the top end of the market will hold up, and the huge cost of extra stamp duty is only serving to put would-be buyers off. It is also crystal clear that the decline at the top end of the market is nothing to do with Brexit, the big drop in prices is entirely the making of the government,’ he added.
‘With the new Chancellor Philip Hammond busy working on his autumn statement, the government should take the opportunity to think again on the stamp duty surcharge, and should also look at cutting the cost of stamp duty across the board as the tax serves only as a disincentive to moving home,’ he concluded.