How stamp duty broke Britain’s property ladder

Man trying to climb impossible ladder to buy his own home, which is in the clouds

Stamp duty is killing Britain’s stagnant housing market. Transactions have fallen to pre-pandemic lows, a majority of households are “under-occupied” and house prices are still vertiginously high.

First-time buyers and movers no longer want to write big cheques to Jeremy Hunt, and those that do out of necessity are stretching themselves so they never have to move again.

The average stamp duty bill now sits at £9,000, up from £6,000 a decade ago.

But it’s not only those taking the first steps on the property ladder who are being penalised. Older people who want to downsize to smaller homes have no incentive for doing so, exacerbating the shortage of family homes.

Alistair Nimmo, of Family Building Society, said the ever-rising tax was stopping homeowners from downsizing and moving closer to family.

“It’s a regressive, transactional tax – and it is clear our members feel the same. One told us he’d rather be carried out of his house in a box than pay stamp duty.”

Stamp duty has lined the pockets of countless chancellors throughout the 21st century. But the weight of the duty on housing markets and families’ finances is no longer possible to ignore.

Residential stamp duty land tax receipts surged 15pc between 2022 and 2023, to £11.7bn, following Rishi Sunak’s stamp duty “holiday” during the pandemic. But since then, property transaction volumes have plummeted – and so has the Treasury’s tax take, with receipts expected to fall to £8.6bn for 2023 to 2024.

Provisional figures for property transactions this tax year point to the lowest number of houses expected to change hands since the financial crash.

There is talk of a potential change to the stamp duty nil-rate threshold, from £250,000 to £300,000, in the Chancellor’s Autumn Statement, his last chance to woo voters ahead of the election.

In the last Budget, Mr Hunt cut capital gains tax on second homes from 28pc to 24pc, explicitly referencing the Laffer Curve – the theory that lowering tax rates actually increases tax revenue.

If Mr Hunt does decide to repeat the temporary cut to stamp duty thresholds, leaving intact the 5pc rate, it will likely benefit the Treasury more than it will benefit homeowners.

During the stamp duty holiday, when the starting point of stamp duty was temporarily raised to £500,000, tax receipts soared and so did house prices – cancelling out any potential tax savings for many.

Chris Etherington and Michaela Seager, of accountants RSM, warned that a further temporary cut could create another artificial bubble of demand. They argued stamp duty cuts should be permanent.

“While some taxpayers might want the Chancellor to go further, a more sustainable and long-term approach to increasing stamp duty thresholds might ultimately leave them better off.”

In the infamous September 2022 Growth Plan – dubbed the “Kami-Kwasi Budget” – former chancellor Kwasi Kwarteng increased the nil-rate threshold from £125,000 to £250,000. He also increased the nil-rate threshold for first-time buyers from £300,000 to £425,000.

A few months later, Mr Hunt reversed nearly all of Mr Kwarteng’s tax cuts. Except for stamp duty, which he said would be in place until March 2025.

High street banks and developers have floated the idea of offering stamp duty rebates to owners who make energy efficiencies to their properties. But sources in the mortgage industry said this opens the Government up to obvious risks of fraud.

Lloyds and Santander were among a group of major lenders which wrote to the Treasury in September 2023 to propose the idea, saying the rebate should be applied to homeowners who improve their EPC rating within two years of sale.

Stamp duty is another tax used by the Government to apply “fiscal drag” to generate higher receipts by freezing allowances while prices rise.

Coventry Building Society calculated that if the £250,000 nil-rate threshold was increased in line with house price inflation, buyers should start paying stamp duty from £366,000 – over £100,000 more than the current threshold.

The situation is even worse in Wales. Its stamp duty equivalent, “land transaction tax”, was brought in six years ago. The threshold before paying tax on a property purchase is £225,000, after which a 6pc rate kicks in up to £400,000, and then a 7.5pc rate.

Around 30,000 sales agreed across Wales over the past year show buyers would have saved at least £1,421 per transaction if the property they were buying was in England.

There were also more than 2,500 transactions in Wales that fell outside the nil-rate threshold, which would not have done had they been sold in England.

Charlotte Gander, of estate agency Peter Alan in Monmouth, said home sellers in Welsh border towns are often forced to reduce asking prices to accommodate the higher taxes buyers must pay west of the border.

In areas like Monmouth, where average property prices hover around £400,000, the disparity in tax paid can be as much as £4,000.

Wendy Peters, 48, is currently in the process of trying to sell her home and move to a slightly larger property in Cwmbran, south Wales.

But she was alarmed at the £20,000 moving cost, which includes a £14,250 transaction tax on a purchase price of £450,000. She said moving costs would be more like £10,000 if she was in England and paying stamp duty.

Ms Peters said: “Land tax and stamp duty really impacts when you can move, where you can move to and more importantly how much you can afford. It makes me wonder how many latent movers there are in the market, put off because of the associated costs.”

Stamp duty affects valuations in England, too. Michael Holden, a chartered surveyor and president of housing body Propertymark, said that the thresholds can “put pressure” on surveyors like him to say a property is overvalued if it is worth just above the threshold.

He added: “Buyers will be thinking about their stamp duty bill and will want to get it under the threshold if they can.

“If a property is worth £251,000, no estate agent would put it on the market for that – they would put it on for just under the threshold. Even if it was worth £260,000, you’d still want to price it below the threshold.”

Six years ago, former Treasury minister Mel Stride admitted in Westminster that evidence suggests the cost of stamp duty is reflected in property values.

Effectively it is a buyer’s and seller’s tax – piling thousands on top of people’s deposits and wiping further thousands off valuations.

Moving home in England will set you back £14,500 on average, according to consumer charity Which? – once other moving fees are taken into account.

With this in mind, an increasing number of homeowners are moving less frequently. The average time people live in their properties rose to 10 years between 2019 and 2022 – up from nine years between 2015 and 2018, according to analysis of Land Registry data by companies Spring and PropAlt.

Buyers are already much more overleveraged compared with their predecessors, before stamp duty is even taken into account.

The housing market is the most expensive market it has been in at least seventy years, according to analysis of deposits required, mortgages, tax and insurance by the Building Society Association.

There are mortgages available to help stretched buyers. But mortgage rates would need to be negative to make borrowing affordable, at eight times salary, and 95pc mortgages in London are only an option for people with very high salaries but little cash.

David Hollingworth, of brokerage L&C Mortgages, said higher mortgage rates over the past 18 months means that stamp duty has become an even bigger consideration.

“It’s a very substantial cost of buying. Let alone pulling together a bigger deposit. It hasn’t kept in step with house prices, despite tweaks. It’s a heavy weight to bear for home buyers.”

The go-to solution for chancellors has been to temporarily change the thresholds. But Jonathan Stinton, of Coventry Building Society, said that only kicks the can down the road.

He said: “A considered, longer-term review, and implementing the findings, would have a greater and longer-lasting benefit to buyers and sellers.”

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