Tomorrow, Chancellor Philip Hammond will outline his Autumn Budget. With so much focus on the first-time buyer market, we need to see a significant amendment to stamp duty (SDLT). Particularly in London, where one bedroom properties are, on average, £400,000-£500,000, SDLT is a killer!
SDLT around this level is over £12,000, which is a huge chunk of money for a young buyer to find – it can take years for someone to save up this kind of money, and then there’s the deposit to cover as well.
Although there are some excellent mortgage schemes available, offering 90-95% loan to value – a figure much more achievable to many young buyers, SDLT is what’s preventing them from buying.
Addressing SDLT in this area of the market could escalate their buying potential by years; saving for a deposit and SDLT can take up to 10 years in the current conditions, so to really get the market moving, cutting this down is imperative.
Pricing out the workforce
If a first time buyer was having to get on the ladder at a price point of, say, £500,000, with a 90% mortgage, they would need to borrow £450,000.
Most people won’t buy a property of that value in their lifetime because income would not support the mortgage – they would need to be earning around £100,000 per year, when the average London wage is £35,000.
This coupled with such high SDLT obligations, means that many are choosing to make their first purchase elsewhere, opting for a larger property sooner, so they don’t need to upsize and pay the extortionate fees associated with moving.
With such a young workforce in the capital, the Autumn Budget should recognise the need to encourage them to stay put, continuing to contribute to its economy and housing market.
SDLT payable by vendors
I’ve been in conversations where there has been speculation over whether the Autumn Budget should see SDLT passed on to vendors, but I don’t think that’s necessarily the way forward.
It may well help when people are ‘upsizing’ or getting on to the ladder for the first time, but what about downsizers? They will be liable for a huge amount of tax on their large asset, when they’re moving to a smaller property with the primary objective of freeing up liquidity and cutting costs.
If downsizers are deterred from moving on, fewer properties are thus freed up for those wishing to move up the ladder, so surely this will again halt market movement. And, in turn, SDLT payments.
Furthermore, passing this cost on to a vendor could well push prices up, as sellers try to cover this additional cost with the sale of the property.
Yes, they’ll be let off the charge on their onward purchase, but this isn’t a benefit in all instances.
The government needs to do something to stimulate the London market. The current conditions are stunting – not helping – the first-time buyer market, and SDLT needs to be looked at carefully.