Three reasons why we need stamp duty reform

Whenever any research is released, part of me can’t help thinking of that old adage, ‘lies, damn lies and statistics’ especially in a sector like property which is so rich in data. 

For instance, to a layman looking at the latest resident property transactions from HMRC, you might consider current activity levels to be strong and on the up. 

The latest stats show a 1.3% increase in transactions between June and July, and these are 8.3% up on the same month in 2016. 

Delve a little further behind the headline, however, and its apparent that the non-adjusted residential transactions were actually 10.3% lower in July than June, and only 1.4% higher than last year. 

Plus the 1.3% ‘increase’ is actually the first one for a while and therefore to talk about a trend of rising transaction levels would be some way off the mark.

But, then again, I’m probably not telling you anything you didn’t know already? 

Agents and fellow conveyancers I speak to have known for some time that transactions are, shall we say, not where we would wish them to be and supply-side issues continue to blight the market in terms of it reaching its full potential. 

The reasons for this are many and varied and it has now reached a point where Barclays analyst Jon Bell recently said that housing transactions have gone into a ‘structural decline’. 

He analysed the number of sales over the past 50-plus years and showed that they reached their peak in 1989 and have been trending down ever since. Again, quelle surprise. 

In recent years, however, it’s hard not to think that much of the slowdown in transactions has been self-inflicted. I’m thinking specifically of the political and regulatory interventionist measures which have effectively decimated buy-to-let purchase activity in order to supposedly transfer more properties from the private rental sector back into the residential market - mostly for first-time buyers. The major tool to deliver this has been the increase in stamp duty for the purchase of additional properties, introduced in April last year. 

My own opinion is that this is a plan that has had limited success, albeit one that has probably stopped many landlords adding to their portfolios, rather than selling up what they own. 

In a very true sense, the obstacles that first-timers mostly come up against in their attempts to purchase – namely lack of supply, high house prices, saving for large deposits, getting access to high LTV mortgages – all still remain. 

All we appear to have done is drastically reduce the number of buy-to-let purchases which has its own implications for much-needed supply in the private rental sector.

Of course, the latest stamp duty figures tend to reveal that, from a tax-take perspective, the policy has been a major success. Perhaps this is the real reason for it in the first place? 

Figures from Blick Rothenberg appear to show stamp duty revenues from additional properties up by 20% (£2 billion) from two years ago, and in July the Government public sector finances actually ran a surplus for the first time in a decade. No wonder Chancellor Philip Hammond might feel he is untouchable at the moment, even if that surplus can’t be sustained.

Which leads us neatly onto the Autumn Budget, now just a couple of months away, and it has been intriguing to hear the rise in calls for action on stamp duty in order to increase transactions. 

There are suggestions that Hammond needs to look at various property groups – so there’s concern that older homeowners are not downsizing in the same number any more because of the cost of stamp duty; this means that such homes which have traditionally been freed up for those further down the ladder are not coming to market. 

And of course, as mentioned, the cost of buying for first-timers remains high – might the Chancellor look at a stamp duty holiday for those buying their first home?

Finally, there’s the major elephant in the room which is the extra 3% charge for additional property purchases. Hammond (or rather his wife) is a landlord but will any cuts, or a full scale u-turn, in this area actually bring him any political brownie points? 

Landlords are never flavour of the month and the Government’s own Housing White Paper seemed to want corporate landlords to fill the PRS housing gap rather than individual private landlords. 

Still, it would be a major boost for the sector and I suspect would undoubtedly increase purchase levels should he choose to take action.

What remains a quandary is the level of tax revenue that has been squirreled away. 

The tap that delivers this will be difficult to turn off, however if transactions continue to fall that revenue will start to drop. Perhaps it’s better to act now than wait for that to happen? 

Of course, Hammond might decide that the status quo is the best course of action, which would be disappointing for all us stakeholders who would like to see the housing market in this country provided with some positive news. 

We shall all have to wait and see what November’s Budget brings – I suspect, however, that the pressure will continue to mount on stamp duty changes, the closer we get to it.

*Eddie Goldsmith is chairman of the Conveyancing Association (CA)