Slower house price growth at the top end of the property market in England and Wales over the last year has effectively offset the hike in stamp duty fees for landlords and second home buyers, according to new research.
An analysis of Land Registry data by independent mortgage broker Private Finance shows that the average price among the top 5% of property sales involving flats, terraced, semi-detached or detached homes across England and Wales in 2016 was £1.12 million.
But this was up by just 0.5% from 2015 when it was £1.11 million and the research suggests that a combination of stamp duty reform and uncertainty following the European Union referendum vote put the brakes on high value property sales.
Stamp duty reform introduced in April 2016 means a property worth £1.12 million is now liable for stamp duty of £89,521 if purchased as a buy to let or second home, at an effective tax rate of 7.98%. This is £33,639 more than the £55,882 fee under the previous system, which still applies if the same property is bought as a main residence, at an effective tax rate of 4.98%.
Despite the higher fee amounting to a 60% hike in stamp duty costs for landlords, investors and second home buyers at the top of the market, Private Finance’s analysis suggests this extra £33,639 cost has been more than offset by the potential savings to be made on property purchase prices as a result of slower house price growth.
Annual price growth of 0.5% in 2016 among the top 5% of transactions was markedly slower than across the rest of the market, where average 2016 prices grew 4.2% from 2015.
Had the top 5% of the market risen at the same rate, buyers would have had to part with £1.16 million for the average high value home in 2016, rather than £1.12 million, an extra £40,827. This saving more than compensates for the additional £33,639 stamp duty bill facing landlords and second home buyers.
The difference is even greater for potential buyers of second homes or buy to let properties in Greater London. The top 5% of 2016 property sales in the capital averaged £2.58 million, up by 1.5% from £2.54 million in 2015. However, the remaining 95% of the London property market saw average prices grow by 8.2% over the same period from £443,259 to £479,507.
Had the top 5% of the London market grown at the same 8.2% rate, it would have pushed average prices in this bracket up to £2.75 million, leaving buyers to stump pay an extra £169,410 for their purchase.
This far exceeds the additional £77,431 in stamp duty that would be due on a £2.58 million home if it was bought as a buy to let or second home where stamp duty would cost £300,903) rather than a main residence where £223,472 would be due as a result of the April 2016 reforms.
The findings come after the Office for Budget Responsibility (OBR) this month forecast increasing stamp duty receipts from 2016/2017 to 2021/2022, and revised up its previous 2016/2017 forecast made in November 2016 on the basis of residential transactions and prices being ‘stronger than expected.
‘Conditions have been tougher at the top of the housing market since last April’s stamp duty reforms, which created all manner of disruption to normal activity before and after they took effect. A healthy housing market needs movement and fluidity at all levels and across all tenures, but successive changes to stamp duty in 2014 and 2016 have had the opposite effect,’ said Shaun Church, director at Private Finance.
‘For would be buyers and investors, it’s that slower growth of high value property prices has had a positive impact on affordability. A buyer today can pay markedly less for a high value property at the top end of the ladder than if growth had kept pace with the rest of the market, making it easier to absorb any extra stamp duty fees,’ he explained.
‘The long term trend of rising house prices means stamp duty can be just as much of a psychological issue for buyers as one of affordability. There are plenty of funding options at hand to help with covering transaction costs, which mean the associated fees and taxes need not be a permanent barrier to property purchases,’ he added.
