Stamp duty changes reducing demand at lower end of market

A new study concludes that changes to stamp duty thresholds are pushing up property prices at the lower end of the market.

One of the UK’s largest housebuilders, Berkeley Group, said that the changes to stamp duty that were introduced in 2014 mean less people are moving home and so fewer homes are freed up for sale, driving up prices, particularly in the south where the shortage of homes is at its most acute.

The increase in stamp duty which only affected homes valued at over £1m had the impact of forcing up prices for cheaper homes and reducing the cost of more expensive homes because fewer people are moving house and family homes are not freed up. It found that the number of new homes registered in London in the six months ending July 2016 was down 37%.

The previous Chancellor, George Osborne changes the system of when different rates of stamp duty apply from a “slab”, where buyers are charges a percentage of the total purchase price when the price reaches a certain threshold to a “slice” system where different percentages are charged to each portion of the overall price. For a full explanation of the current stamp duty rules see this link.

There was no charge for prices below £125,000, then 2% up to £250,000, 5% up to £925,000, 10% to £1.5 million, and 12% above that.

Berkeley’s report said: “In London and the South East, where prices are higher and housing crisis most acute, the changes have been inflationary at the bottom end of and deflationary at the top end.”

Meanwhile, a separate survey by YouGov for the Yorkshire Building Society says that reforming the stamp duty system would help first-time buyers get on the housing ladder, with two-thirds of potential first-time buyers saying they would be more likely to purchase their first home if they did not face a stamp duty bill.

The stamp duty bill, which has to be paid up front, would, according to the research, save the typical first-time buyer in London, £13,000 and an average of £3,800 for first-time buyers in the rest of England and Wales, with 72% of respondents saying they would find it difficult to meet these extra costs.

Andrew McPhillips, chief economist at Yorkshire Building Society, said: “Saving enough to pay stamp duty adds to the overall difficulty of buying a home.

“It is hard enough for buyers to find the right property in the right location without the need to pay additional fees and taxes, given the scale of house price inflation in recent years."

He added: “Reducing any of the costs such as stamp duty for first time buyers and those moving up the ladder would help to make homes more affordable for many, enabling more people to realise their homeownership aspirations.”

A Treasury spokesman said: “Nearly 800,000 ordinary house buyers across the UK have had their stamp duty bills reduced or frozen in the year following our reforms.

“Property prices are affected by a range of different factors including wage growth, exchange rates and the availability of mortgages.”

Infographic: What the public wants from Theres May re housing