Under the old system, property hunters looking for homes valued between £500,001 to £1m would pay 4% on the whole purchase price. For properties priced over £1,000,001 to £2m, a rate of 5% was levied while homes worth over £2m were hit with 7%.
The new regime now charges 5% for the portion of the property which falls between £250,001 and £925,000 and 10% for the portion which falls between £925,001 and £1,500,000. Properties valued at over £1,500,000 will be charged at 12% for the top slice.
In the Treasury’s fact sheet on the changes and rates it said that for a property worth £2,100,000 buyers would have to shell out an extra £18,750 to cover the tax bill.
This week we’ve asked out experts what effect, if any, this rebanding and restructing of the tax has had and will have on their high-net-worth clients’ appetite for property in the luxury home-end of the market.
Ian Gray, senior partner at specialist broker firm Large Mortgage Loans, reveals how some clients are changing their strategies in an unexpected direction.
Lucian Cook, Savills’ UK head of residential research, discusses how the prime central London market is coping with the change.
Grainne Gilmore, head of UK residential research at Knight Frank, looks at how buyers and sellers are working together to manage the impact.
Ian Gray is senior partner at specialist broker firm Large Mortgage Loans
The recent changes to SDLT were certainly a shock which detrimentally affected most of our clients whose properties are normally over the £1m mark. Rather than having been the sole reason for a slowdown in the million-plus property market, it’s one of a number of contributing factors.
Many of our clients are waiting to see if property prices come down as a result of the change, but it’s difficult to know whether it’s these changes, waiting for the election in May, a general January quiet period, or a feeling that prices are a bit too heavy in London are the main reason they’re waiting.
Several of our clients have changed strategy and are looking for even higher-value properties now, with the idea that if the SDLT is that much higher, they only want to make one more move rather than climbing the ladder with several purchases over time.
There’s still a general view that London house prices will still increase in the medium to long term, and that it’s a good investment – especially if it’s the main residence. If the desire is to own one’s own home in London, and the horizon for ownership is long-term, then the increased Stamp Duty costs pale in comparison with the gains that will be made just by owning the real estate over many years.
We think that the market will pick up in a few months, once the changes have been absorbed into the market and especially once the election results are known in the spring.
Lucian Cook is Savills’ UK head of residential research
The increased rates of Stamp Duty introduced in the Autumn Statement resulted in an adjustment in values at the top end of the market, most notably in prime London and parts of its high-value extended commuter belt. As a result, the average all prime London index, where values average £2.6m recorded a -2.6% fall in the final quarter of 2014 and ended the year +2.6% up.
That being said, prices in prime central London were easing before the Autumn Statement, so for the very top end of the market the Stamp Duty rise coincided with some of the froth coming off pricing earlier in the quarter. It will take time for the full effect of the Stamp Duty changes on prices to become clear, but early signs show additional costs are predominantly being borne by sellers through price adjustments at a similar level to the additional Stamp Duty costs.
Given the adjustments in pricing being made by vendors, we are still seeing committed buyers across prime London. In particular, London’s prime markets up to £1m and in the £1-2m range are less adversely affected and aren’t as concerned by a potential Mansion Tax, with annual price growth of 6% and 2.5% respectively.
Looking ahead, we anticipate a minor dip in price growth of -0.5% in prime London in 2015, but forecast five-year growth of 22.7%, on the basis that Mansion Tax is ultimately not introduced.
Grainne Gilmore is Knight Frank’s head of UK residential research
The changes to Stamp Duty introduced by the Chancellor in December’s Autumn Statement cut the property taxes payable for the majority of buyers in the UK. This fillip to the market came after mortgage lending ended 2014 up 17% compared to 2013, and at the highest level since 2008.
Yet towards the end of the year, mortgage activity began to slow slightly – the changes to Stamp Duty may serve to reverse this to some extent. Yet there are other factors weighing on the market at present, such as affordability constraints for buyers in some regions, especially London and the South East of England which have been exacerbated by strong house price growth over the last year.
The increased difficulty in actually being approved for a home loan as a result of the new MMR rules introduced in April last year have not unwound, and are expected to remain a hurdle for buyers for some time yet.
It is still early days to detect from the data the extent to which the Stamp Duty changes are having an effect, but Knight Frank agents report that after a surge of activity in the hours following the Stamp Duty announcement, transaction levels for £1m plus have regained an equilibrium broadly in line with activity before the announcement.
It seems that this market, where buyers must now pay more in Stamp Duty under the new regime, is beginning to absorb the changes. Where asking prices were set before 3 December there have been some examples of exchange prices being eroded. However, amid tough bargaining between vendors and buyers many are coming to some agreement to split the difference between the old and new Stamp Duty charges.
