What impact have the stamp duty changes had?
Q. There has been a lot of talk of the stamp duty changes. Now that they’re in force, how has this affected the London property market?
A: The most recent stamp duty land tax (SDLT) changes came into effect on the 1st April this year, resulting in an extra 3% SDLT payable, on top of the normal rate, by anyone buying either a buy-to-let investment, or a second home – regardless of whether their primary residence is in the UK or overseas.
The changes are still too recent to identify definite or long term impacts on the market. However, there are strong indicators and I suspect many will be fairly long standing.
For London properties in the lower and mid-level price brackets, demand from investors has definitely reduced, but it’s still there, as many investors continue to favour property over other assets such as shares. This is largely expected to continue and, whilst the additional SDLT is a consideration, I suspect over the coming months that investors and sellers will, in many cases, share the increased cost between them through the buyer paying more in tax and the seller accepting a slightly lower price to compensate the buyer.
However, the higher SDLT cost has really hurt the top end of the market, especially in the £5m+ price range where many buyers own second homes and the extra 3% tax, therefore, applies more frequently. This hit at the top end is further compounded, as it was only in December 2014 that the whole SDLT system was changed from flat rates of stamp duty to a blended rate, which has hugely increased the stamp duty bill for higher end properties, plus an extra 3% is now payable on top if it’s a second home. The downside to the reduction in transaction levels at this end of the market is that it causes a blockage in the housing system and properties aren’t bought and sold and are, essentially, recycled for those moving up the chain.
For anyone who owns a primary residence and buys a new home before they sell their existing home, the extra SDLT will be payable. However if they sell their original home within 36 months, they will be able to claim back the extra 3% SDLT. Some are predicting that there will be an increase in home owners selling via auction to avoid falling foul of the 36 month deadline, but that remains to be seen.
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