Why a stamp duty holiday won’t rescue the property market

Estate agents are by nature an optimistic breed, but there was little evidence of sunny outlook in the Royal Institution of Chartered Surveyors’ latest miserable snapshot of the UK market. 

Its survey found almost universal pessimism over sales prospects for the next three months as the housing market falls into suspended animation thanks to the coronavirus lockdown. A clear majority of agents reckon the gloom could last a year.

No wonder, then, that RICS has called on the Chancellor, Rishi Sunak, to introduce a temporary stamp duty holiday in an attempt to get the market off to a flyer again when normal service resumes – hopefully – later this summer.

Agents and housebuilders have a vested interest in calling for temporary relief from a tax they viscerally detest, although the organisation says it does not make the call “on a whim”. But would such a holiday do any good, and is it necessarily a tax break that the Chancellor would want to give?

A look at the latest revenues figures for 2018/19 suggests that he should proceed with caution. During the year the taxman garnered £8.4bn in tax from the residential portion of the stamp duty alone: but £3.3bn of that – 39pc – was paid on transactions in the capital, where property prices are much higher than the national average.

The London borough of Westminster accounted for £488m in receipts alone – a bigger sum than five entire regions of the UK.

Outside the relative madness of the capital’s property market, the figures show that more modest properties priced at £250,000 or less accounted for 59pc of all transactions, but just 11pc of the total receipts.

The affluent South East also chipped in £1.8bn in stamp duty, too, so economists argue that a blanket stamp duty holiday would simply end up as a tax break for the wealthiest people who can afford the most expensive homes. That is a political minefield for any Chancellor to pick through.

Hansen Lu, a property economist with Capital Economics, is expecting a 70pc slump in transactions in the second quarter but does not think a holiday is the way to go. “It would be a big giveaway for people at the top of the market – it would be regressive,” he said.

Besides, fewer people are paying stamp duty at all after then Chancellor Philip Hammond scrapped the tax for first-time buyers on homes worth less than £300,000 in 2017. That move saved those in that bracket more than £500m last year. 

Even for those buyers still liable for stamp duty, saving the £1,500 to be paid on a £200,000 home, for example, may not be enough to kick start a sentiment-driven market against a backdrop of significant economic turmoil, Lu adds. 

“It would certainly be helpful but if buyers are genuinely scared, the amount by which it can boost demand is limited. It is really not that much money compared to how much risk you are taking on when you are buying a house.”

Estate agents have already raised the move with ministers although Mark Hayward of the National Association of Estate Agents admits that the billions already lost by the end of the shutdown might make a holiday “difficult to swallow” for the Treasury.

Stamp duty as a fast stimulus tool also has its issues, as the money is only paid – and potentially saved – at the end of a sales process that usually lasts weeks or months.

Hayward adds: “You don’t save the money up front, you only save it at the end. And the large stamp duty payments are on figures over £1m, so does the Government want to be seen assisting just those at the top?”

Builders are in favour but even while acknowledging the industry’s vested interest in a holiday, Jon Di-Stefano – chief executive of London-based builder Telford Homes – says it would have to be designed carefully: “It would not be right to give a stamp duty holiday to somebody who wants to be buy a second home in the Cotswolds, and they should not be doing it for buy to let either.”

Others see its potential as part of a package of measures. Greg Fitzgerald, chief executive of Bovis Homes, calls it a “very good idea”, but is more focused on continued mortgage availability and an extension of the Help to Buy government support scheme.

However, it has caused controversy by putting rocket fuel under bonuses at companies such as Persimmon since its introduction in 2013.

The scheme is due to be limited to first-time buyers and subject to regional caps from April 2021 and abolished altogether in 2023. “I would have a bet with you that it won’t be,” says Fitzgerald. “I don’t see them stopping that.”

As he points out, the Government has “never been so invested as it has been in the housing market”, having made loans of £14.3bn on £65.7bn of homes since Help to Buy began.

Whether ministers accept the doubtful merits of a stamp duty holiday, the figures underline its interest – along with that of every homeowner – in thawing out the property market as soon as it can.

Source Article