Speaking on a panel debate hosted by Investec Bank, James Thomson, private banker at the company, said he was seeing the changes ‘resonate’ most strongly among those buying properties in the £1m to £5m price bracket.
“Between £1m and £5m what we’re seeing is the leverage requirements increasing with Stamp Duty, so whilst you had clients who were looking for 70% [loan-to-value] they are now looking for 80% because they have to put a lot of cash into the Stamp Duty,” said Thomson
George Osborne changed the charging system of SDLT from a slab structure to a progressive structure, which is a similar structure to income tax. At the same time he increased the tax rates for properties at the top of end of the scale.
The portion of a property which falls within the £925,001 to £1,500,000 price bracket is charged at 10% while any element of a property which is priced at £1,500,001 or above is subject to a 12% levy.
Thomson said those shopping for homes above the £5m price mark were generally of billionaire status and unlikely to be troubled by a large Stamp Duty bill whereas between £1m and £5m the typical buyer was a City worker and less able to absorb the tax hike. He said he had seen a definite ‘softening’ in valuations of properties priced around £3.5m to £4m.
Panellists were asked whether they thought the government would backtrack on the Stamp Duty hikes at the top end of the market.
Thomson said: “Osborne has got other battles at the moment on the fiscal front, he’s got his welfare Working Tax Credit restrictions thrown out by the House of Lords, of all people. He is reporting back on 25th [November] on how he’s going to bridge that [gap] up to £4bn. Doing that, at the same time as lowering the top level of Stamp Duty Land Tax is a political no no so I think it is here to stay, certainly for the time being.”
Jeremy McGivern, managing director of Mercury Homesearch, a prime London property agent, said the 12% end of the market was already beginning to get used to the changes.
McGivern said he had initially thought the government would U-turn on its decision to raise the higher property tax bands to 10 and 12% after Stamp Duty receipts took a large hit up until May this year. But due to ‘huge price elasticity’ at the top end of the market, those shopping for prime property had started to warm up to the reforms.
“The one thing that humans are is adaptable we get used to things very quickly,” said McGivern. “We are effectively frogs being slow boiled, we get used to it and say ‘fine that’s the cost of transacting’. You don’t pay any Capital Gains Tax if this is your primary property and if you are worried about your losing your hundreds of millions and billions elsewhere, paying 12% is a minor inconvenience.”