UK property industry disappointed over lack of stamp duty reform
There is disappointment in the UK property industry that Chancellor Philip Hammond did not take on board calls for a change to stamp duty, the tax paid when a property is bought.
In the run up to the autumn statement there had been hope that he might reverse the 3% additional stamp duty imposed earlier this year on additional homes which affected by to let landlords and second home buyers.
There had also been calls for reform of stamp duty at the upper end of the market with numerous analysis reports pointing out that higher rates to tax announced two years ago have adversely affected the prime property market, particularly in London, with prices and sales falling in many areas.
Instead he chose to announce billions in new funding for new homes, especially affordable homes, and a ban on letting agent fees and was accused of not understanding how the private rental sector works amid warnings that the fees will be passed on to landlords who will in turn pass it on to tenants in the form of higher rents.
The prime property market is disappointed, according to Robin Paterson, chief executive officer of United Kingdom Sotheby’s International Realty, who pointed out that the fee ban will have little impact on the top end of the market in central London and a significantly negative impact in the middle and bottom end.
‘Agents in prime central London charge smaller fees to tenants in comparison to the lower end. However, with the cost of investing in London property higher than the rest of the country, this will deter investment in the middle and lower markets as these fees will undoubtedly fall to the landlord, creating yet another factor to consider when determining return on investment,’ he explained.
‘This is unfortunately yet another blow to an already fragile market. What the Chancellor should have proposed was more regulation in this part of the industry, rather than simply passing the cost from one party to another,’ he added.
He also pointed out that the Chancellor failed to understand that stamp duty changes are much needed. ‘Whilst some correction to pricing was needed, these corrections have certainly taken place and a kick start to the middle and high end London market is now necessary. Stagnation at any end of the housing ladder is not good for the economy, suffocating the top end has consequences for the lower and vice versa,’ said Paterson.
‘At the very least, the Chancellor should have reduced second home stamp duty on buy to let properties and kept the rates as they are for those with multiple homes they use as residences. These landlords are providing much needed rental accommodation, especially in densely populated cities such as London and Manchester,’ he added.
‘The more the government picks on the landlord the more rental prices will increase and home ownership will continue to decline,’ he added.
Thomas van Straubenzee, managing director prime property agency VanHan, said the stamp duty changes introduced last year have slowed the prime London market. ‘Many people who were previously looking to move, for example, to downsize or upsize or simply for a change of scene, are staying put so as not to incur the increased stamp duty costs, and this only serves to stifle overall market activity,’ he explained.
‘The outcome of June’s referendum added another layer of uncertainty to the London market as would be buyers worry about sustainability at the top end, and the increased stamp duty is a further deterrent. We believe a cut in stamp duty would have boosted the London property market and economy,’ he added.
Cutting stamp duty would have been a tax cut that effectively paid for itself, according to Anthony Hesse, managing director of estate agent recruitment consultancy Property Personnel. ‘ There is no more economically stimulating activity than house sales and purchases and the continued stifling of the market is a missed opportunity for both the estate agency sector and the country,’ he said.
He explained that whilst the replacement of the old slab system of stamp duty in 2014 was an improvement which reduced the burden for many home buyers, it has been the cumulative hikes in the levy since 1997 which have continued to block the market.
‘Rates at the upper end of the housing market have now been set so eye wateringly high that they are killing it off. Inevitably, this has an impact lower down the chain. A substantial cut in the rates would have reduced people’s current disincentive to move, and would have brought in more money for the Treasury as a result. But as it stands, we know that the existing duty realised only half as much as expected last year, namely £330 million rather than the £700 million predicted,’ he pointed out.
‘What’s more, the 3% surcharge on investors and second home buyers has led house builders to think again before constructing the new homes that the country so desperately needs,’ he added.
There is another downside to not reforming stamp duty, according to Duncan Walker, managing director of Renaissance Villages. He explained that it was a missed opportunity to speed up the lengthy chains delaying downsizers selling family homes.
‘This was an opportunity for the Chancellor to introduce an incentive for people buying a family home from a downsizing owner. This would have galvanised the progress of property chains, which are often around five sales long, and helped to free up larger family homes and assist the housing ladder from first time buyers upwards,’ he said.
‘It is affluent third steppers, looking to purchase their forever family home who will continue to be most significantly hit by punitive moving costs. Typically looking to purchase a home upwards of £1 million, this group will still be faced with stamp duty fees of 10% to 12% in addition to expensive moving costs and the prospect of higher mortgage payments, most likely stretching their budget to the maximum,’ he explained.
‘As a result of this, older people wanting to sell the family home and move to retirement developments are delayed. We currently have £20 million worth of potential sales, representing 55% of currently available stock across our retirement villages in West Sussex, Hampshire, Warwickshire and Devon waiting for the final link in the chain to complete and the sticking point tends to be the family home being sold,’ he added.