First published by Mortgage Introducer
You might think that promises made in the heat of a political battle are not worth the paper they’re written on, especially when the reality of taking power might be very different to the perception, however the recent announcements by the two contenders for the Conservative Party leadership have certainly provided plenty of food for thought.
Perhaps none more so within our sector than Boris Johnson’s proposals to cut stamp duty completely on houses valued up to £500k, and to drop the rate from 12% to 7% for homes valued over £1.5 million, which many believe has been particularly destructive to the purchase market in London.
Whatever you might think of Johnson, in this area he appears to know his audience particularly well, and this could bring about a real increase in housing transactions, specifically amongst the second homeowner (and above) cohort, because it’s widely thought that many people have not put their home on the market and purchased up the chain because of the costs of doing so, chief amongst them, the large stamp duty amounts that need to be paid to move.
It’s interesting and informative to compare the reaction to the relatively recent stamp duty changes, particularly the decision not to charge stamp duty for first-time buyers purchasing homes valued up to £300k, with Johnson’s proposals.
While the first-time buyer decision was met rather mutedly for a number of reasons – the belief that this wouldn’t bring more people into the housing market it would just help those who were already going to buy, and that according to the Office for Budget Responsibility, the real winners here would be existing homeowners who could expect to see house prices rise as a result of first-timers being able to offer a little bit more for their properties – Johnson’s plan seems to have gone down well.
I think there are a number of reasons for this, but principally because this appears to be a universal housing ‘benefit’ to all homeowners/potential purchasers, a large number of which are likely to live in homes valued below the £500k threshold, and are also likely to be buying properties below that value and therefore ‘gaining’ from such a policy.
Currently, if you want to purchase a home valued at £500k, you would need to find £15,000 in stamp duty. That’s a significant amount in anyone’s book and, whereas the current first-time buyer stamp duty saving – which is likely to be a few thousand pounds at most – probably doesn’t make the difference between going ahead or not, I would suggest that adding £15k to your purchase costs probably does.
Indeed, we’ve seen plenty of evidence in the purchase market, that existing homeowners are loathe to ‘waste’ these thousands of pounds in stamp duty via moving home, and instead have tended to stay put and/or utilise that ‘saved money’ to extend their existing home or look at add value to it.
Consider the latest UK purchase market statistics from HMRC and you’ll see what the impact the rules have had over the last few years – in May this year, the number was 89,810, compared to 101,220 in May 2018, and 101,300 in May 2017. For the first five months of this year, the total was 478,820 transactions compared to 512,580 for the same period two years ago. That’s a significant drop-off which is why the industry has been calling for more support and positive intervention from the Government.
Taking away this stamp duty burden for large numbers of purchasers could therefore provide a much-needed fillip to the housing market, and I would suggest it will certainly offer a greater incentive for those who might want to move, but have been put off by the costs involved.
Certainly, the housing market has been crying out for an incentive like this and Johnson appears to have tapped into that need. The likelihood is – if Johnson becomes PM – we’ll have a September Budget, prior to the end of October deadline for leaving the EU, and we’ll have a large number of measures announced which will be focused on boosting the economy, especially if a ‘No Deal’ appears to be on the horizon.
Changing stamp duty in such a way would clearly be welcome – might we even see a change to the levels charged for those purchasing additional properties, like buy-to-let landlords, which would provide further growth to the overall purchase sector? It would be nice to think so but part of me believes this change would be contained to purely the residential market.
Whatever the outcome, mortgage advisers might now wish to prepare themselves for an increase in purchase activity. They might even want to contact those within their client bank who they know were put off purchasing because of the increased costs, including stamp duty, to see whether they might want to change their mind if this measure is announced? The important point is to get ahead of the game and to be ready to provide the products and services necessary for those clients who might see this as an opportunity to purchase for the first time or to now make their move.
Rob Clifford, Chief Executive of Stonebridge Group