Market overview summer 2015
It is only now becoming clear just how profound December’s reform of Stamp Duty Land Tax (SDLT) was on the prime central London market.
The chancellor’s announcement was made six months before the election, which meant that the full extent of the new stamp duty legislation was disguised for many months. Prime central London (PCL) transactions in the first half of 2015 were 22.7% down on the same period last year. History has shown a quiet pre-election period for the property market followed by a bounce back as pent-up demand is released. However, any recovery in 2015 has been muted at best.
There is no doubt that the additional burden of tax has suppressed demand for high value properties and stemmed the flow of new instructions to the PCL market. The average stamp duty bill on a home sold for over £5 million has risen by 54%. On a property valued between £2 million and £5 million, it has increased by 30%.
Buyers, particularly investors, are reluctant to pay substantially more for a property than they previously would have. Owners in these markets are also rarely forced sellers and can afford to wait for demand to recover. So, rather than drive down prices, the effect of SDLT reform has been that far fewer high value properties have been brought to the market and activity levels have fallen.
Stamp Duty Revenue Falls
Far from netting more income and helping to address the deficit by raising taxes on wealthy home-buyers, stamp-duty revenue has plummeted under the new system. In the first half of 2015, receipts from stamp duty were 9% lower than for the corresponding period of 2014. It is too soon to calculate the lost revenue in a post-election period but current activity levels suggest that receipts will be down. Indeed, in March the government revised dow n its forecasts of stamp duty revenue for the next two tax years, by £1.7 billion and £2 billion respectively.
Market stability prevails
The market will take some time to absorb a sudden increase in transaction costs and buyers are taking longer to consider their position. However, new registrations have risen since the election and we now have a more stable and predictable market than has been the case for several years.
In fact, for properties below £1 million, where stamp duty liabilities were reduced after the reforms, the market is surprisingly robust, driven by domestic buyers and buy-to-let investors.
The relative political detachment and economic stability of the UK within Europe was underlined this summer, as the heated negotiations over a Grexit were at their most intense. It seems highly likely now that capital will flow to the UK from the more economically fragile parts of Europe.
Date: 07/2015 | Source: Winkworth
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