The government is coming under increasing pressure to reform stamp duty to revive the housing market and help more first-time buyers onto the ladder.
Mortgage lender Coventry Building Society has become the latest to add its voice to calls for property tax to be reduced or abolished, saying it could make it easier for people to move up and down the housing ladder throughout their lives .
It produced an analysis of HM Revenue and Customs data to reveal what they believe is the negative impact of stamp duty on the housing market.
According to Coventry’s analysis of the latest HMRC figures, housing transactions fell to the lowest level in four years in the first three months of 2024.
There were 192,500 property transactions between January and March this year, marking the first time the number fell below 200,000 in a three-month period since the second quarter of 2020, at the height of lockdown restrictions.
Stamp duty reform: Changing the tax could boost the housing market, according to Coventry
Since records began in 2008, there have been only eight of 64 quarters where the number of residential property transactions was below 200,000, according to Coventry analysis.
During the pandemic, in 2020 and 2021, a stamp duty holiday was introduced which increased the stamp duty threshold for residential property from £125,000 to £500,000, leading to a surge in housing market activity.
Jonathan Stinton, head of mortgage relations at Coventry Building Society, said: ‘It was always expected that the number of people moving would fall once the 2020-2021 stamp duty holiday was over, but the numbers have continued to fall and now we are back to where of 2011.’
He added that long-term changes to the system “could not only put money back in buyers’ pockets – it could also lubricate the market and make it easier for people to move up and down throughout their lives.” to go up the ladder.’
“It must be a carefully considered reform aimed at building long-term stability, rather than a sudden sharp increase in numbers,” Stinton added.
“Temporary vacations and simplistic cuts are mainly short-term solutions that don’t necessarily help buyers years down the road.”
What is the current stamp duty rate?
Current stamp duty rates are set at a percentage of the purchase price, which varies depending on the value of a property.
You can check how much you would pay with our stamp duty calculator.
Home movers currently pay no stamp duty up to a value of £250,000, and first-time buyers are exempt from the tax unless their property is worth more than £425,000.
However, on March 31, 2025, the threshold for non-starter movers will be reduced to £125,000.
Under the current stamp duty system, the part of the purchase price of a property between £250,001 and £925,000 is charged at 5 per cent, between £925,001 and £1.5 million the tax rises to 10 per cent, and above £1.5 million, the tax has been increased. 12 percent of the purchase price will be charged.
Buyers and landlords of second homes usually pay an extra 3 percent on top of these rates.
What has happened to stamp duty over time?
Homebuyers purchasing properties worth between £250,000 and £925,000 currently face the same 5 per cent rate as people did in early 2015.
Coventry says average house prices have risen by almost 50 per cent in that time, from £190,665 to £280,660, based on its analysis of Land Registry figures.
This means that those buying property today are therefore much more likely to end up paying the 5 per cent stamp duty than in the past.
Average house prices have risen, but stamp duty thresholds have remained the same
And with the threshold falling to £125,000 next year, the situation looks set to get even worse.
Nearly half of property purchases so far this year have been between £250,000 and £500,000, which Coventry says means almost half of buyers paid stamp duty at 5 per cent of the house price.
This is a big shift from the first three months of 2015, when less than a third of buyers paid between £250,000 and £500,000.
In fact, only 25.5 percent of property transactions fell below the £250,000 threshold in the first three months of this year.
This represents a huge drop from the same period in 2015, when 57.6 percent of transactions were less than £250,000.
Unsurprisingly, the average stamp duty bill has risen by almost £3,000 over the same period, from £6,065 to £9,038.
Although first-time buyers pay stamp duty from £425,000, research from Coventry found that more than one in five first-time buyers have still been liable for tax so far this year.
Can stamp duty actually change?
Karen Noye, mortgage expert at asset manager Quilter, said: ‘The government is rumored to be considering raising the stamp duty threshold to £300,000, which would save buyers up to £2,500 and could help revive the market.
‘However, this would not benefit first-time buyers who are exempt from stamp duty on properties up to £425,000, and there is a risk that this will be inflationary in the short term.
Karen Noye says that the large increase in mortgage interest rates is starting to weigh on some people
“The significant slowdown in real estate transactions could further prompt the government to increase the stamp duty threshold in the hope of gaining greater momentum in the market.
‘Given that 121,000 people will have purchased properties costing between £250,000 and £300,000 in 2023, the public could have saved a maximum of around £300 million in the last year alone if the stamp duty threshold had been set at this higher amount. I also hope that such a move will increase support in the run-up to the elections.”
There are also concerns that the higher stamp duty will limit the activity of potential rent-to-rent investors, leading to a lack of available properties across the rental sector, which in turn drives up rental prices.
The number of additional real estate transactions – such as owner-occupied and rental properties – fell to 43,800 in the first three months of 2024 – this is 19.1 percent lower than the average number of additional real estate transactions per quarter since the second quarter of 2022.
Jonathan Stinton from Coventry argues that the right changes to stamp duty could make a big difference to homebuyers and the wider economy.
‘The best solution is to temporarily change the thresholds, but there is a risk that within a few years they will no longer be in sync with house prices, and that they will not pay attention to other issues such as support for downsizing companies or the significant upfront costs for those thresholds. investing in rental properties.
‘A considered longer-term evaluation and implementation of the findings would deliver greater and longer-lasting benefit for buyers and sellers.’
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