The housing market has got the extended holiday many were hoping for and the clock is now effectively ticking for new buyers who haven’t yet started the process of purchasing a home to take advantage of a reduced Stamp Duty charge.
Stamp Duty Extended Holiday
According to Rightmove data it has taken an average of 54 days to sell a home since the holiday was introduced in July, down from an average of 70 days in the 12 months prior.
Assuming the average time to sell a home remains at the current level, aspiring buyers have until 7th May to begin a purchase to take advantage of the holiday extension.
Overall the Stamp Duty holiday has provided a much-needed confidence boost to the housing market following its full closure in March last year. However, its previous cliff edge ending on 31st March always risked seeing sales fall through increasing anxiety for aspiring purchasers. The extension will provide welcome relief to those purchasers and open the door to additional buyers. There now needs to be clear signposting introduced to ensure the cliff edge is not just pushed further down the road.
2% overseas Stamp Duty surplus
This tax represents a big shift in UK Government policy away from an open trade policy – until now there has never been a consideration of an investors origin if they are looking to buy an investment home.
This tax will undoubtedly create some market resistance for an initial period until it becomes accepted. It should be noted that many other competing cities already provide higher levels of overseas taxation so the UK’s major cities should remain competitive on the international stage.
First Time Buyer Mortgages
95% mortgages have been all but non-existent for some time now so the Government’s mortgage guarantee scheme is hugely welcome news for aspiring home owners who have long faced mounting affordability issues.
Capital Gains Tax changes
The UK has obviously seen a significant increase in its debts as a result of supporting the country through the COVID pandemic. Those who can pay more tax, should pay more – that is only right and it fits with the levelling up agenda.
Nearly half of the UK’s privately rented homes are in suburban locations owned by small scale buy-to-let landlords. There could now be an increase in demand for this kind of housing stock from first time buyers looking to take advantage of the new mortgage guarantee scheme. The proposed changes to Capital Gains Tax could prompt of flurry of sales from landlords looking to exit before the changes take place. However, if there isn’t sufficient lead in time before the CGT changes take effect, it could reduce the volume of rental stock coming to market. CGT is ultimately a discretionary tax, and if homes become bloated with that tax, many landlords will opt to sit on their asset and wait.
Wholesale Review of Residential Taxes
Looking ahead, the Government has announced a Tax Day on 23 March and this could include the commencement of a widespread review of residential property taxes.
Reviewing how residential properties are taxed in the UK is long, long overdue.
Council Tax is based on residential values from 1991, which frankly are a very poor reflection of the current market. Meanwhile, Stamp Duty is a hugely inefficient tax which is ultimately a potential hindrance to the future economic prosperity of the UK. It makes no sense for people to find themselves ‘locked-in’ to their current home because of the tax burden of moving. People need to be able to migrate towards opportunities as easily as possible in the 4th Industrial Age and as part of the levelling up agenda.
Government also needs to acknowledge that we have an ageing population and SDLT is a hugely punitive tax for those looking to descend the housing ladder and right-size in later life. Without enabling more people to downsize, we face many people continuing to live inappropriate homes for their needs which in turn forces Government to have to increase expenditure on health and social care.
However, any significant changes in the tax system must be carried out with care, following a detailed consultation and with a sufficient lead-in time. Any replacement residential tax should carry a similar starting burden for individuals. The variance should then occur over time to allow householders to adjust their finances accordingly.
Overall Budget Conclusion
There are many welcome announcements within this Budget. However, solutions to the housing challenge must also focus on providing homes to suit a greater variety of end user needs. Society has changed and we must move away from the concept of blanket home ownership. We need measures to support an increase in purpose-built rental homes which will professionalise the private rented market, providing long-term, secure housing, and raising the profile of renting as an aspirational lifestyle choice.
And we need attractive, specialist later life housing which will help free up family homes and make more efficient use of existing stock. With people living longer, the UK’s ageing population is typically under occupying family homes, but appropriate alternatives will encourage right-sizing.
Measures to address the housing market should be targeted at increasing all forms of supply, not just increasing demand for Private Sale housing only.
Nick Whitten - Head of UK Living Research
