Martin Bikhit, Managing Director of Kay & Co, asks how much longer can stamp duty be levied at what, to its critics, is a punitive rate?
It was under Chancellor George Osborne that stamp duty was raised to its current, historically unprecedented levels. The aim was not just to raise extra revenue, but to put the brakes on the central London housing market, which was in danger of over-heating.
Now, with George Osborne editing the Evening Standard, and a new Chancellor of the Exchequer in Downing Street, the political weather has changed. A long line of Conservative MPs is urging Philip Hammond to revisit the issue of stamp duty. And while the Chancellor has so far been deaf to their pleas, a cut in stamp duty must surely have risen-up the list of his priorities. If it has not, it should do.
The problem with the current high levels of stamp duty is that they are impacting, not just on the wealthy, but on the entire property market, particularly in London. In March, according to the Nationwide’s Price Index, the average price of a property in the capital was just under £480,000 – resulting in a stamp duty charge of just under £14,000, unthinkable a few years ago.
People at the bottom of the housing ladder are theoretically exempt, as no stamp duty is payable on properties worth under £125,000. But how many London properties fall into that price bracket?
In a textbook example of the law of unintended consequences, the stamp duty changes targeting the rich are now hitting people on average or below average wages, too. According to figures published in the Daily Telegraph, 71 per cent of all first-time buyers now pay stamp duty, compared with 45 per cent in 2013. Getting on the housing ladder is hard enough without the Government putting additional obstacles in the way.
We appreciate that the Chancellor’s scope for fiscal manoeuvre is limited. But we also believe that, with a little flexibility, the worst features of the present arrangements could be addressed. At the bottom end of the scale, the £125,000 threshold surely needs raising, if first-time buyers are to be encouraged to enter the market.
At the end of November or the beginning of December, Philip Hammond will deliver the first Autumn Budget in 20 years. It is the perfect opportunity for change. At the top end, we would suggest, there needs to be a more gradual tapering of the rates levied. Charging 5 per cent tax on properties worth between £250,000 and £925,000, then 10 per cent on properties worth between £925,000 and £1.5 million, then 12 per cent above that, is going to deter so many potential buyers in central London that the game is not worth it.
Static house prices can bring stability to the housing market. But the high levels of stamp duty have put such a dampener on activity in the market that there could be a danger of a more serious downturn. If the Government is serious about getting the housing market moving again, it would be mad to rule out stimulating activity by targeted cuts in stamp duty.
Martin Bikhit, Managing Director of Kay & Co has more than 20 years’ experience in the property sector. Contact Kay & Co estate agents for details of properties for sale or to rent in Marylebone, Bayswater, Paddington, Notting Hill, Mayfair, Fitzrovia, Regents Park and The West End (020 7262 2030; Kay & Co).