Changing stamp duty rates and ways of charging will not address housing issues according to a leading property management firm. Apropos by DJ Alexander believes that the recent suggestions from both Boris Johnson and his Chancellor Sajid Javid about the where stamp duty begins and who pays for it are using a tax system to address more fundamental issues within the property market.
The Prime Ministers flirtation with the idea of removing stamp duty for all property under £500,000 and the Chancellor’s mooted idea of making the seller pay all of the Stamp Duty Land Tax (SDLT) are ideas which are floated and then rejected when the reality of their impact is assessed. Both politicians propose using a UK wide legislative change to address a London property market problem. The results in both cases would be inflationary, unfairly punitive to parts of the market, and ultimately unsuccessful.
David Alexander, joint managing director of Apropos by DJ Alexander Ltd, explained: “Politicians seem to be clutching at straws in an attempt to reform the housing market and are using simple means to address complex issues. Changing the level at which SDLT in England and Wales starts will not resolve anything other than potentially provide a short-term boost to the currently flagging London property market. But this is the wrong solution for the wrong problem. There will also be a knock-on effect on the rest of the UK which we can see in the growing disparity in property tax levels between Scotland and the rest of the UK.”
“The downturn in the London property market is driven by a number of reasons including the loss of confidence of overseas cash investors who find the uncertainty over Brexit of concern; a correction to an overheated market, and affordability issues. Investors believe there are other, safer, investment opportunities which they are attracted to and consequently these investors, who made up a disproportionately large percentage of buyers, have moved their cash elsewhere. Is this a permanent change to the London market? No. This market will pick up again. It may take a few years but anyone buying now will see an increase in their property value over the next five years. When the market fell 17.8% from its peak in January 2008 it took until April 2012 for average prices to recover. London prices began to fall from their July 2017 and so far, the lowest month was March 2019 when average prices had fallen 5.2%.”
David continued: “The issue is that you cannot develop policy which benefits one part of the country at the expense of the rest of the UK. Changes to SDLT might make London more attractive in the short term but could have the unforeseen consequence of driving more people to the capital and consequently increasing prices in the medium to long term which will resolve nothing.”
“The idea of making a seller pay the SDLT is not only unfair it would clearly be inflationary. Sellers would be determined to recoup the additional cost of selling their home and would be tempted to add on whatever the SDLT cost would be. There is also the issue of fairness. Why should someone who has paid SDLT to buy a property then have to pay it again to sell? This is penalising those who have owned a property for some period and benefitting those who are new to the market which is clearly unfair. First time buyers moving to their new home would find they had lower funds to put into their new property which would clog up the lower to middle end of the market while those who had accumulated large sums in their property might delay selling to avoid the additional tax. Rather than free up the market it would make it very stodgy indeed.”
David concluded: “The housing market is a complex mix which requires sensitive handling. It is market driven and sentiment is important. Sending signals out about rising costs, higher taxes, and penalties for accumulating value do not instil confidence. Politicians would be better served liaising with property professionals for solutions to taxation, housing supply, and market behaviour rather than pouncing on single ideas and running with them in the media for a few days until they are shot down in flames. The Prime Minister and Chancellor are clearly testing out potential ideas for the Autumn budget, but these need to be clearly thought through with more than cheap headlines in mind. Better to develop a long term, stable approach to the property market which involves private ownership, the private rented sector and social housing to create a housing system which is fair, provides homes for everyone, and is sustainable in the long term. This requires sensible debate among all interested parties and appropriate planning for the future.”