Stamp Duty the most complex Tax? Is it killing the property market down

The changes to Stamp duty introduced initially by George Osborne and followed through by the current Chancellor seem to have achieved the aim of raising taxes but at the same time ated as a large negative for Buy to Let investors and First time buyers who have to buy in the South East and London.

The punitive rates for First Time buyers have become a negative that balances out any of the support to First Time buyers offered by Help to Buy schemes. It all means that if you are faced with London or South East first time buyer property prices then the Government has probably increased your costs considerably. This regional discrimination will no doubt affect the perception of the Government among the more youthful elements of the population.

It has become such a glaring issue that a daily newspaper ” The Daily Telegraph ” has started a campaign to influence the Chancellor in order to see reductions in Stamp Duty for First Time buyers and I guess we all would like to see this campaign succeed.

The newspaper has also highlighted how complicated the Stamp Duty regime has become, no doubt like others before him the Chancellor will say he aims to simplify the Tax system, then if this is true ( I suspect it is not ) then Stamp Duty would be a good place to start.


In fact the Telegraph has published an up to date calculator which is I have to say very useful, but also shows how complex this element of the Tax system has become.


Is the Buy to Let property market going to crash

OK, the number of mortgage being authorised is at the lowest level for nine months, the financial results from estate agents look pretty scary, particularly those with a concentration on the London property market and of course there is a long queue of commentators lining up to tell us that property prices will fall , or will crash  completely, over the next 10 years, etc. etc.

If you listened to these drumbeats you would start looking for any form of investment that does not involve property. As for Buy to Let, well after the impact of the tax changes and if prices are going to fall then it’s a sure fire way to lose money. Surely this is the logical conclusion.

In my view no, it is the wrong conclusion. The same media outlets will tell a different story if you turn over the page, this story comments that house prices have surprisingly continued to rise. Even in the London area. So how do we find ourselves reading about such contradictory and confusing stories, all based on solid facts.

It started with a Chancellor who decided to increase his tax take on the premise his actions were about making property more affordable and available for everyone. The premise I applaud, as making housing more available and affordable has to be good for house buyers and in the long term the housing market. The actions he took tended to hit specific sections of the Buy to Let market, the smaller investor with one or two properties and the higher priced London market.

The results were as expected, a slowdown in the London market overall with the impact going from top to bottom of the price range. A flood of Buy to Let purchases to beat the dates on Tax changes followed by a slump in activity. House prices in London stagnating and falling slightly with the major impact being at the top end. A switch of activity to the out of London property markets.

This was intended to lead to a surge in available housing for first time buyers and therefore a surge in first time purchases which would strengthen as house prices fell.

Well we have seen an increase in first time purchases which is good news. We have not seen though the scale of increase that might have been hoped for. The reason, simply put, is that there are too few houses on the market. Estate agents are suffering not only due to a slowdown in activity, they are also suffering due to a shortage of stock. A lack of supply has meant that house prices even in the face of reduced demand have and will continue to rise. Until wage inflation starts to close the wages to property price gap for first time buyers then demand may stay at a reduced level, which of course means that demand for rental property will continue to strengthen particularly as population growth continues at its current rate. On the supply side no actions taken by the Chancellor are going to result in the size of increase in housing supply that would be needed to stagnate prices. So estate agents may continue to struggle but house prices will continue to rise. Which will lead in London to empty property as landlords in some cases mothball property waiting for the London top end market to re ignite, which it will.

For the Buy to Let market well the focus will be outside of London for some time to come and as statistics become comparable with last years changes no doubt we will see moderate growth resume. In fact I know of one case where an prospective Buy to Let purchaser has found themselves being gazumped. So the market is still alive and it will be growing.

All of which for the reasons above means that in my opinion we will not see a property price crash, rather we will see continued demand for rental property, continued house price increases and eventually a strengthening of demand in the Buy to Let market.

I of course have a vested interest in this market, so this is good news, however whats your thoughts on the confusing signals from the Property market.

A Topsy Turvy Property Market

The latest figures from the Office for National Statistics reveal a surprisingly strong property market. It seems Average House prices have risen by just over 5% in the last year. The London property market appears to have been the most sluggish, with a rise of 2.5%, the North West showed the largest increase with a 7.3% rise. Of course, these are averages and so hidden under the surface there must be a wide spread of variations and ups and downs. No doubt within the North West some of the more fashionable locations will have registered strong House price growth and of course some locations will have registered low or negative prices changes.

These variations are to be expected, however what does seem strange are the statistics themselves. The fact that House price growth is still so strong, due to high demand and restricted supply, seems at odds with other snippets of information about the residential property market. Nearly 40% of  House prices have been reduced, and in the recent quarter 28% of Residential transactions fell through ( Perhaps Exchange Insurance is a worthwhile investment ). The First Time buyer market is still struggling perhaps because in London the average deposit required to enter the market is now a whopping £100k. At times we have seen numerous articles telling us that the era of constant House price increases has past and we should expect slow price growth, no price growth or some even say steep House price falls.

These seemingly contradictory facts spread across the whole residential property market, in the rental market  a lot of commentators have talked about Buy to Let Landlords releasing houses on to the market as they cut back their portfolio.

It seems that the rental market, which feels as if it has had more Government intervention in the last 2 years than the previous 20 years has started to reach a balance and adjust to the new reality. Landlords particularly those who own more than one property seem to have accepted the new level of returns on investment that the market offers. What’s happening is a simple balancing of supply and demand and the balance is reached by the increase or decrease of rents.  The regional variation in house prices also probably reflects Landlords moving their investments outside of London as opposed to Landlords stopping investing.

In the residential property market, the same forces are at play, increasing demand meeting very restricted supply. The balancing factor of house prices will again show variation in ups and downs according to the demand and supply in each region and location. The overall shortage of housing seems to point to further house price rises in the future, and probably underlines the fact that house prices are not going to crash any time soon. The one unknown is the lowest end of the house purchase chain, the First Time buyer. This is because once someone has a property to sell then to some extent the fluctuations in price are self-balancing in that if you sell low, you can buy low, sell high then you will probably have to buy high.

At the start of the chain the First time buyer has no such consolation, if the price is high then they have to find the deposit and mortgage needed regardless of pricing. In a market as unbalanced as the current one this is difficult. The Government has recognised this and the Help to Buy scheme has given a push start to the First time buyer market. This only helps new property buyers (and therefore Housing Developers) leaving large swathes of potential buyers who get no such support.

We can hope for more interventions from the Government to help First time buyers as Housing seems to be becoming one of the very hot Political touchpoints of the moment. The problem with this of course is that there is only so much that Government can do. Deciding to launch a host of new towns (many of which seem to have MOD land available for sale) is fine. It will no doubt impact the demand for housing in those areas, it will not however help the majority as the impact is too local. Unless these locations offer good commuter links to areas of employment then they will not help supply meet demand. So unless the Government is willing to consider a real leap of imagination in providing support to all potential First time buyers regardless of whether they are purchasing new or old then this part of the market will remain fragile.

If the Government embarked on a large scale and funded drive to build more social housing then this may over time lead to Landlords reducing their housing stock. As it would result in a rebalance of rents to reflect the change in supply and demand of rental property. In turn this could impact of House prices as more Housing stock became available for sale.

Personally I could not see a Government being willing to embark on the scale of action and funding which would be required to alter the market dynamics, and so the see saw will continue and we will keep reading seemingly contradictory facts and articles. These contradictory statistics and articles have to be seen against against the backdrop of a Housing market in which there are simply too few properties to meet the demand for housing. Which means that in this topsy turvy world regions and locations may show reductions while overall the trend for House prices remains upward.