Stamp Duty (or Stamp Duty Land Tax to give it its full name) in its current form is a barrier to recovery in the UK housing market. It pushes the cost of moving to a level most people just can’t afford. It’s the number of sales that indicate a healthy market, not dramatically rising prices.
Recent reports of a recovery in the market and a ‘housing bubble’ are misleading. Wealthy foreigners are driving up prices in London at such a rapid rate that the true state of the market is masked. Many other regions are still suffering from a real-terms drop in prices and the number of transactions remains depressed.
Pro’s and Con’s
The best way to gauge the health of the market is to look at the number of houses sold each month.
In 2006, before the banking crisis, monthly house sales were as high as 120,000, falling to as low as 30,000 in 2008. Since then, monthly sales have settled at about 60,000 – half the level of the peak. (Source: Land Registry.)
There are three key reasons for this market malaise:
- The general economy (lack of confidence and austerity measures).
- High level of deposit required by first time buyers/difficulty in obtaining mortgage.
- The cost of moving (principally Stamp Duty Land Tax).
No single group can have much of an impact on the general economy or deposits and mortgages, but by lobbying Government, organisations and opinion formers, Stamp Duty Reform aims to do something about Stamp Duty.
A lifetime’s bad news
Stamp Duty adversely impacts on people at every stage of their life.
The first-time buyer’s burden
First-time buyers seeking a £200,000 property typically have to save a 20% deposit (£40,000) and 1% Stamp Duty (£2,000), making a whopping total of £42,000. It’s no wonder that in recent years the average age of the first-time buyer has risen from mid-twenties to early thirties!
Bad for families and a career blocker
There is no let up for second-time buyers wanting to move to accommodate a growing family or because of a new job. They will face all the costs of selling and moving, but once again the main barrier is Stamp Duty. If they are buying a £300,000 house this amounts to £9,000, perhaps the equivalent of four months salary at a time in life when money is tight!
The mid-life dilemma
After years of saving and hard work, it’s time to enjoy a nice family home. But for many, particularly in the South East, this is an impossible dream. A four-bed detached house in a good area might cost £600,000. And the Stamp Duty on this? A staggering £24,000. This is seven months after-tax salary for someone who is earning £50,000 a year.
The price of success
There’s probably little sympathy for those who can afford a £1m house, but in many places, especially parts of the South East this is what you have to pay for a four-bed executive home. So if you are a company director and you need to move you are faced with a Stamp Duty bill of £50,000 at just over the £1m house price level – that’s £90,000 in earned income at the top level of income tax. For a properly functioning market there needs to be movement at the top and the bottom.
The entrepreneur hits the buffers
You’ve risked everything and pursued your dream, so now you can buy your £2m ‘mansion’ (or two-up, two-down if it’s in parts of London), except you can’t! The Stamp Duty payable on a purchase just over the £2m level is £140,000 – more than £250,000 in earned income at top-rate tax levels.
The empty-nester’s nightmare
The children have left home and the house is too big, so it’s time to downsize to something more manageable and release some cash – except you can’t afford it. A huge chunk of any equity released would be eaten up by Stamp Duty. So we have people forced to stay in houses that are too big for them, while others are forced to stay in houses that are too small!