How are the new Stamp Duty changes (April 2016) effecting the UK housing market ?

What are the changes in Stamp Duty ?

As of April 1st 2016 considerable changes in payable Stamp Duty (SDLT) were introduced by the conservative government in the UK (excluding Scotland) when buying a second home. So for example if you purchase a second home on a free hold for £150,000 that you do not intend to occupy yourself the SDLT due on that property would be £5000 after April 1st 2016. Previous to this date the SDLT due would have been £500. If the property is £300,000 the SDLT due would be £14000 where as it would have been just £5000 prior to the April 2016 changes. (calculate your SDLT here). In essence 3% has been added to the Stamp Duty percentage for each ‘slice’ of property values (over £40,000). So as you can see the changes are significant to 2nd home owners or buyers.

Why were these changes introduced in to the UK housing market ?

Well quite simply the UK housing market has been overheating for some years now driven by a number of factors. A shortage of housing supply due to both lackluster new house building and a growing population. Speculative investors ie. investors buying up housing stock in the hope that prices will increase so they can sell the property on for a profit, this problem is particularly acute in London with overseas buyers dominating the higher end of the market distorting prices even further. A lack of alternatives for investors and savers. With Bank Of England interest rates remaining at record low rates traditional investments and saving options are just not attractive options for most people. Finally the ‘buy to let’ market, more homes in the UK in 2017 are now rented than ever before and while this may indicate that it is more cost-effective to rent rather than buy your 1st property this is often not the case with rents actually being higher than a mortgage on the same property, applying further upward pressure on house prices overall.

The April 2016 increases are an extension to George Osbourne’s (Chancellor Of The Exchequer) 2014 Stamp Duty reforms that fundamentally changed how Stamp Duty was charged on all properties. From a ‘slab’ format where the percentage for the corresponding threshold was applied to the whole value of the property to a ‘slice’ format where graduating percentage rates are applied to each slice of the value of the property according to the threshold parameters. Osbourne’s changes were strongly criticised by a report at the end of 2016 by Oxford Economics claiming they were causing damage to the housing market, job losses and a loss of tax revenue, which lead to campaign by The Telegraph to get the reforms over turned. However the report only focuses on properties valued over £1,000,000 most of which are in the London area. The report seemed not make much of an impression as Philip Hammond (Chancellor Of The Exchequer) decided to build on the reforms with April 2016 increases.

So how did this change effect the UK housing market ?

Many predicted a surge in housing sales and purchases ahead of this change to avoid the additional charges and the table below seems to support that prediction –

Screen Shot 2017-04-20 at 22.34.04
Table shows Office For National Statistics data for property sales volume between Q1-2015 – Q3-2016

You can clearly see a significant spike in sales in Q1 – 2016 of 68,853 sales compared to the previous quarter across England and Wales, however a caveat should be applied to these figures. Q1 of any year tends to be the more popular time of year to buy and sell a house but even with that caveat extrapolated there is still a significant upturn in sales. Whats more stark however are the following figures for Q2-2016 and Q3-2016. The sales volume does drop back but not as far as the comparable previous years figures, suggesting that the increase in Stamp Duty, designed to cool the market has not worked. In fact right up to latest figures ending December 2016 all measures including sales volume and property prices appear stable. So in conclusion the robust UK housing market as a whole seems to have taken the Stamp Duty changes in its stride, at least for now.

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