Stamp Duty creates sales spike
The research found the profound spike in transactions just under the 3% stamp duty rise at £250,001 whilst analysing the Land Registry’s Price Paid Data, which records every sale that transacted in England and Wales (less probate sales, company transfers and repossessions).
LCP said: “The research demonstrates that in the absence of a tax hike, only 5,777 transactions would have occurred at the £250,000 price point during 2012.
“However, the distortion caused by the increased Stamp Duty rate led 19,643 sellers to duck under the ceiling last year to effect a sale, 3.5 times more than would be expected.”
A further 9,721 properties are estimated to have not sold at all, made up of buyers who could not afford to take such a heavy price discount.
Almost 25,000 people last year were adversely affected at the expense of the Exchequers balance sheet. All of which could have been avoided by a ‘soft’ introduction of higher taxes.
Since the introduction of Stamp Duty at £250,001 in 1997, the research uncovers consistent price suppression between £250,000 and £260,000, before a property becomes ‘saleable’ at its genuine market value.
The flat-lining of cumulative transactions in England and Wales in 2012, between these two price points, clearly demonstrates this.
Analysis of Prime Central London, whose average price crossed the £250,000 threshold shortly after stepped Stamp Duty bands were first introduced, gives the most insightful snap-shot of the punitive nature of this tax.
Each time the tax rate at £250,001 increased; from 0% to 2% in 1997, from 2% to 2.5% in 1999 and then to 3% in 2000, the spike in sales under £250,001 became more and more pronounced.
LCP said: “So what does this dynamic mean for hard-up UK homeowners? LCP’s forecasts show that, on current growth levels, 52,654 more households will reach £250,000 over the next five years.
“When they decide to sell, they will be faced with a very tough decision, the ‘Stamp Duty Dilemma’. To sell at up to a £10,000 discount? Or not to sell at all?
“The first course of action means the homeowner may simply be treading water when they buy a new property as they are unable to trade up.
“The second course of action is inaction. Either way, the doors remain firmly closed to first time buyers.
“For those who are forced to sit and wait until their property reaches its true market value, this would be an achingly slow 2.5 years on average. Another blow to ‘Generation Rent’ as they hunt for available stock to buy at entry price level.
“The government need to grasp the mettle and reduce the tax hike at £250,001. Whilst it will have a cost to the Exchequer, it will be a drop in the ocean compared with the stimulus packages already introduced.
“The long term impact for these packages is unknown and probably dangerous, whilst reducing the Stamp Duty rate is guaranteed to make a difference for good, for second steppers and first-time buyers.”