Analysis: how will the stamp duty holiday affect the housing market?

13 July 2020, The Sunday Times

Will the stamp duty holiday boost sales and house prices?

By Martina Lees

We’re not going on a summer holiday, but — as Cliff Richard didn’t sing — at least we’re getting one on stamp duty. Will that boost a recovery in the housing market?

Despite an all-time record of 8.5 million visits on the Rightmove site the day after the chancellor announced the tax break, the answer is far from simple.

Most economists expect consumer confidence to dip towards October, when the government is planning to stop paying the wages of furloughed workers and mortgage holidays are due to come to an end. Then there will be more uncertainty over the risk of a no-deal Brexit as Britain’s transition deal with the EU ends in December.

The stamp duty break is going to be valid until March 31, 2021 — far longer than originally anticipated — and is being timed to reduce the impact of unemployment and economic uncertainty on the housing market.

Announcing the measure, Rishi Sunak pointed out that housebuilding supports almost 750,000 jobs, but that “property transactions fell by 50% in May”. He went on to say: “House prices have fallen for the first time in eight years, and uncertainty abounds in the market . . . We need people feeling confident — confident to buy, sell, renovate, move and improve. That will drive growth.”

According to a forecast from the Centre for Economics and Business Research (CEBR), the policy will lead to a 6% rise in property transactions — that’s 41,000 extra sales — over the next nine months.

However, Jon Bell, a housing analyst for Deutsche Bank, warns that while the measure will push up sales temporarily, this will come to an end when the holiday period finishes in March. He explains: “For petrolheads, this is a jump-start, rather than a new lithium battery.”

Bell also points out that the policy won’t actually make much of a difference to prices. For example, a home mover buying a £250,000 property would save only £2,500 (1%) of the price in stamp duty. The buyer of a £500,000 home would save £15,000 (3%), with the relative saving falling above that level.

An HM Revenue and Customs study has also shown that a two-year stamp duty holiday from 2010 for first-time buyers on homes under £250,000 only ended up pushing up house prices by 0.5-0.7%. And buying a house is such a significant financial decision that in times of uncertainty “not many people will commit before the outcome is clearer,” says Jamie Durham, an economist at the consultancy PwC.

The CEBR is forecasting a 5% fall in house prices this year and a further 10.6% drop in 2021 before they start rising next autumn. Pablo Shah, its housing economist, predicts a slow property price recovery in the shape of a “Nike swoosh” — as do Bell and Durham.

“Unlike previous economic crises, it’s not founded on structural imbalances in the housing market. We expect prices to recover as people’s incomes recover,” Shah says. “We’re not expecting any kind of boom.”

At least one non-economist disagrees. Rob Bence, the co-founder of the Property Hub investor podcast and forum, has made his boldest prediction in seven years of broadcasting: “We’ve never had this much financial stimulus injected before.

“We won’t just head into a recovery, we’ll be pushed into an almighty economic boom . . . It won’t happen immediately, but it’s coming. When the boom comes it’ll be at a scale we’ve never seen before.”

Lu believes that this view is overly optimistic, but Andy Haldane, the Bank of England’s chief economist, has claimed Britain is on track to rebound faster than expected — in a V-shaped recovery.

Ultimately the stamp duty cut should boost jobs for housebuilders, estate agents and conveyancers — and even homeware shops and garden centres, if buyers spend their savings on a sofa or an outdoor dining set. However, Bell warns that the cut is “best seen in the context of an 86% year-on-year fall in mortgage approvals in May” — a worrying sign for future volumes.

Does a stamp duty holiday go far enough — or should we abolish it altogether?

By Hugh Graham

Abolish stamp duty. It has been the mantra of high-end estate agents ever since the then chancellor George Osborne introduced reforms of stamp duty land tax (SDLT) in 2014, which made buying a house cheaper for purchases under £937,000 — 98% of households — but more expensive in Mayfair. Even after last week’s stamp duty holiday was announced for purchases under £500,000, Home’s inboxes were full of emails from top-end agents saying Rishi Sunak did not go far enough.

Take Enness Global, a high-net-worth mortgage broker. It argues that although buyers in prime central London — where the median sold price is £4.92 million — will save £15,000 under the new reforms, buyers on a £14.1 million home will still pay £1.6 million in tax. “High-end homeowners certainly won’t be getting any richer thanks to Rishi,” says its chief executive, Islay Robinson. “This archaic tax continues to leave a bad taste in the mouth of prime buyers. It’s about time this government money-grab was abolished completely.”

Trevor Abrahmsohn, director of Glentree International, an estate agent in north London, argues that ever since Osborne’s 2014 reforms, “transaction numbers have been reduced by 70%, and the cost to the Treasury has been between £5 billion and £12 billion in lost taxes”.

These industry arguments have become so pervasive that they have filtered into the mainstream. Andrew Pierce, a journalist, said on Good Morning Britain this week: “When George Osborne was chancellor he massively increased stamp duty, and what happened? Less money came into the Exchequer.”

However, the claims of lost revenue are a myth. New figures from LonRes, a property data company, reveal that HMRC’s stamp duty receipts have been higher every single year since the reforms were introduced in December 2014, by at least £1 billion annually. Before they were introduced they stood at £6.45 billion for 2013/2014. For the year ending 2019/2020, ending March 31, they stood at £8.39 billion.

It is true that transaction levels above £1 million fell 30% between 2014 and 2019, according to LonRes. Abrahmsohn argues that the lower activity at the high end reduces other revenues such as pay as you earn, VAT, capital gains and corporate tax, but doesn’t have figures that show this reduction is significant enough to offset the government’s increased stamp duty revenues since 2014.

Camilla Dell, founder of Black Brick, a London buying agent, would welcome tax cuts at the top end, but is resigned to the status quo. “I can’t see it happening politically. They’d be accused of being a party for the rich when they are trying to help the north. Sunak’s reforms gave my buyer on a £2 million flat in St John’s Wood an extra £15,000. I think this is as good as it gets for us.”

Henry Pryor, a buying agent, is one of the few agents to defend George Osborne’s 2014 reforms, saying the higher rates stopped double-digit house-price inflation in Notting Hill and Chelsea, deflated a bubble and helped 95% of buyers. “Osborne deserves credit. The reforms did exactly what he wanted. It brought prices down.”

Times are of course very different now, but he can’t see the government scrapping or cutting stamp duty at the high end, not least because, contrary to what many agents say, SDLT is still a cash cow for HMRC. “I would imagine the government has done its sums. Sunak’s policies helped 90% of the people, but the Treasury is enormously dependent on the top end for revenue. Something like 45% of the SDLT revenue comes from the £1 million-plus market. We need some of these deals so we are at least getting some revenue.”

Come on, super-prime buyers: splash out to help out.

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