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The Government is under increasing pressure to reform stamp duty to help revitalize the property market and help more first-time buyers get on the ladder.
Mortgage lender Coventry Building Society is the latest to add its voice to calls for property purchase tax to be reduced or scrapped, saying it could make it easier for people to move up and down the housing ladder throughout their life. life.
It produced an analysis of HM Revenue and Customs data to reveal what it believes is the negative impact of stamp duty on the housing market.
Residential property transactions fell to a four-year low in the first three months of 2024, according to Coventry analysis of the latest HMRC figures.
Between January and March this year there were 192,500 property transactions, which is the first time the figure has fallen below 200,000 in a three-month period since the second quarter of 2020, at the height of lockdown restrictions.
Stamp duty reform: Changing the tax could boost the property market, says Coventry
Since records began in 2008, there have been only eight of 64 quarters in which residential property transactions have been below 200,000, according to analysis by Coventry.
During the pandemic, in 2020 and 2021, a stamp duty holiday was introduced which increased the residential stamp duty threshold from £125,000 to £500,000 and caused an increase in property market activity.
Jonathan Stinton, head of mortgage relations at Coventry Building Society, said: “The number of people moving home was always expected to fall once the stamp duty holiday ended in 2020-21, but numbers have continued to fall. and now we are back to 2011 levels.’
He added that long-term changes to the system “could not only put money back into buyers’ pockets, but could also oil the wheels of the market and make it easier for people to move up and down the ladder throughout their lives.” .
“It has to be a carefully considered reform aimed at building long-term stability rather than a sudden, sharp rise in numbers,” Stinton added.
“Temporary holidays and simplistic cuts are primarily short-term solutions that won’t necessarily help buyers years later.”
What is the current stamp duty rate?
Current stamp duty rates are set at a percentage of the purchase price, which varies depending on the value of the property.
You can check how much you would pay with our stamp duty calculator.
Currently, home-movers pay no stamp duty up to a value of £250,000, and first-time buyers are exempt from the tax unless their property is worth more than £425,000.
However, on 31 March 2025, the threshold for home-movers who are not first-time buyers will be reduced again to £125,000.
Under the current stamp duty system, the part of the purchase price of a property between £250,001 and £925,000 sees tax charged at 5 per cent, between £925,001 and £1.5 million rises to 10 per cent, and Above £1.5 million is 12 per cent of the purchase price charged.
Buyers and owners of second homes typically pay an additional 3 percent on top of these rates.
What has happened to stamp duty over time?
Homebuyers purchasing properties valued between £250,000 and £925,000 currently face the same 5 per cent stamp duty rate as people did at the start of 2015.
Coventry says that during that time average house prices have increased by around 50 per cent, from £190,665 to £280,660, according to its analysis of Land Registry figures.
This means that property buyers today are much more likely to end up paying the 5 per cent stamp duty rate than in the past.
Average house prices have risen but stamp duty thresholds have stayed the same
And with the threshold set to fall again to £125,000 next year, the situation looks set to get worse.
Almost half of property purchases so far this year were between £250,000 and £500,000, meaning almost half of buyers paid stamp duty of 5 per cent of the house price, according to Coventry.
This is a big change compared to the first three months of 2015, when less than a third of buyers paid between £250,000 and £500,000.
In fact, only 25.5 per cent of property transactions fell below the £250,000 threshold in the first three months of this year.
This represents a big drop from the same period in 2015, when 57.6 per cent of transactions were under £250,000.
Unsurprisingly, the average stamp duty bill has increased by almost £3,000 over the same time period, rising from £6,065 to £9,038.
Although first-time buyers start paying stamp duty from £425,000, Coventry research revealed that more than one in five first-time buyers are still liable to pay the tax so far this year.
Could stamp duty really change?
Karen Noye, mortgage expert at wealth manager Quilter, says: “It has been rumored that the Government is considering raising the stamp duty threshold to £300,000, which would save buyers up to £2,500 and could help revive the market. .
‘However, this would provide no benefit to first-time buyers who are exempt from stamp duty on properties up to £425,000, and risks proving inflationary in the short term.
Karen Noye says the big rise in mortgage rates is starting to hit some
‘The significant slowdown in property transactions could further prompt the Government to increase the stamp duty threshold in the hope of increasing momentum in the market.
“Given that 121,000 people bought properties costing between £250,000 and £300,000 in 2023, the public could have saved a maximum of around £300 million in the last year alone if the stamp duty threshold had been set at this amount more high, so the government can also hope that this measure will help build support in the run-up to the elections.’
There are also concerns that higher stamp duty rates are restricting the activity of potential buy-to-let investors, leading to a lack of available homes across the rental sector, which in turn is raising the rents.
The number of additional property transactions, such as buy-to-let properties, fell to 43,800 in the first three months of 2024, which is 19.1 percent less than the average number of additional property transactions in each quarter since the second quarter of 2022.
Jonathan Stinton, from Coventry, argues that the right changes to stamp duty could make a big difference to homebuyers and the wider economy.
“The preferred solution has been to temporarily change the thresholds, but there is a risk that they will be out of sync with house prices in a few years’ time and will not address other issues such as support for those downsizing or the significant upfront cost for those “. Invest in rental properties.
“A considered long-term review and implementation of the findings would have a greater and longer lasting benefit to buyers and sellers.”
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