Stamp duty changes dampen housing market
10 November 2015
It may be strange to reflect on a Budget that is nearly a year old but changes to stamp duty land tax introduced in December 2014 are still having a crippling effect on the housing market.
The changes have had the greatest impact on properties costing more than £1 million, which form the majority of transactions we handle on behalf of clients. Someone buying a house for £2m pre-December 2014 would have paid 5 per cent stamp duty or £100,000. Now, the tax bill is more than £150,000, a 50 per cent increase.
It gets more punitive the higher up the scale you go. If you are spending £5m, your effective tax rate is 10.28 per cent or more than £500,000. While sales at these levels are a tiny percentage of the total volume in the country they are significant because the market is driven from the top down.
Furthermore, as high-value sales are much more common in London and a healthy market in the capital is the engine that drives country property, it is clear why these changes are having a wider effect on the market.
Most buyers, even the super rich, work to a fixed budget, which must cover all costs, including stamp duty. If the tax bill rises, buyers don’t lower their expectations in terms of what property they want; rather they will reduce what they are willing to pay for the same house. While officially stamp duty is a tax on the buyer, he or she is expecting the seller to meet them at least some of the way.
Unsurprisingly, sellers have been slow to react, creating a divide between what a buyer will offer and a seller will accept. Nothing new there you might say but it is creating a price sensitive, selective market with buyers looking for real value.
Market adjustments take time and we have been seeing this in London where house-price growth has slowed considerably. Unfortunately, until prices align with buyer expectations the market will simply not function properly.