Wednesday, October 25, 2017


BLOG 180


Is stamp duty (as the popular Press like to call HMRC) really the problem that prevents young people from getting on the property ladder?

The effect on the average home of the SDLT increases on 3 December 2014 is:

                                                                  Old SDLT                       New SDLT

            £250,000 house                                  1%                               1%
            £500,000 house                                  3%                               3%
            £750,000 house                                  4%                               3.66%

According to the Nationwide House Prices Index, house prices over the period since December 2014 have increased as follows:

                                                            UK                   London           London Metropolitan

Average price in Sept 2017                 210,982           471,761           365,554
Average price in Dec 3014                  189,002           406,730           301,612
Increase                                                21,980             65,031             63,942

Percentage increase                           11.63%                        15.99%                        17.49%

So what is preventing young people getting a foot on the ladder?  The retail price index stood at 257.5 in December 2014 and is 275.1 now, an increase of 6.8%.  I would say it is inflated house prices rather than SDLT!

Perhaps a more intriguing statistic is that the Land Registry say that 30-40% of all housing transactions in September were for cash (25% in London).  Not pound coin cash of course, but purchases without a mortgage.  It is improbable that young people anxious to get on the housing ladder will have saved 100% of the prospective purchase price before trying to climb on.  It is equally unlikely that the Bank of Mum & Dad will have done so.  That suggests that 30-40% of purchases are either purchases by investors or possibly people who have sold their house, moved temporarily into rental accommodation and are now ready to buy again.  As there seems to be a consensus that house prices have largely levelled off and are as likely to fall as the rise much further, this would be an odd time to re-enter the market though.

This suggests that the real problem for young people is that the government are not prepared to reduce the attraction of UK residential property to investors.

The three percentage points SDLT surcharge is not much of a deterrent, i.e.

                                                SDLT by first time buyer        SDLT with surcharge

£250,000 house                                     1%                                         2.5%
£500,000 house                                     3%                                         5.25%
£750,000 house                                     3.66%                                    6.17%

The restriction of loan interest relief to the basic rate is unlikely to have much effect.  It clearly has no effect to those who buy without needing to borrow – probably mainly foreign investors – and the indications to date is that landlords are not rushing to sell up.  Either their rents are sufficient to absorb the extra tax costs or they are looking to incorporate (often unwisely) because the restriction does not apply to investment by companies, only that by individuals and trusts.

It is an odd state of affairs where the government (the Cameron/Osborne government that is, not the May/Hammond one) seems to have decided that UK resident individuals looking for somewhere to live need to be deterred from competing with corporate landlords, many of which are controlled by rich overseas residents.

It is hard to see what the government can do to help the young.  The tiny bits of extra finance that have been made available through Help to Buy ISAS and through the Help to Buy house Purchase Scheme is a drop in the ocean.  There seems to be no political appetite to curb investors, which is clearly the only real solution to young people’s problem.