Conveyancers fear the worst as stamp duty cut mooted

Rates of stamp duty land tax (SDLT) will once again become the subject of change as Liz Truss looks to cut the tax on moving homes in a mini-budget this Friday. This has led to concern from within the conveyancing sector – which is already stretched to its limit – that an uptick in demand may see their workload soar.

According to The Times, the move comes as part of an attempt to drive economic growth by enabling more first-time buyers to get on the property ladder and boosting property transactions. Truss said:

“I’ve been very clear that as well as keeping taxes low, we need to put in place measures that are going to drive growth in the economy. And that’s my priority — we’ve had relatively low growth for several decades.”

First-time buyers pay no SDLT up to £300,000 on their first house purchase. For others, there is currently no SDLT on the first £125,000 of a property. Between £125,001 and £250,000, a 2% tax is applied; 5% between £250,001 and £925,000; 10% between £925,001 and £1.5 million; and 12% on the value of a property beyond £1.5 million.

It remains to be seen exactly to what extent Truss and her Chancellor Kwasi Kwarteng reduce the £12 billion-a-year levy to.

It was, however, suggested by some within Whitehall that “the cuts were the ‘rabbit’ in [Friday’s] mini-budget”.

Whether a permanent cut will instigate the same frenzy effect as the SDLT holidays of the pandemic era remains to be seen. There may, however, be something of a mini-panic in the market to delay exchange until after Friday’s mini-budget – or perhaps advise clients of the risk and reward of doing so – as some conveyancers have suggested.

Others have suggested that the move will simply boost demand for an already scarce product – housing – thus driving up prices once more. What would really boost the economy, they say, is homebuilding.

What is the current picture with regards to stamp duty?

HM Revenue & Customs released data on Wednesday which showed that stamp duty receipts for the period April 2022 – August 2022 are now at a total of £8.9 billion – £2 billion higher than the same period a year earlier – an increase of 29%.

Additionally, data from Rightmove is helpful in showing how many homemovers are paying stamp duty, and at what rate:

• The average stamp duty that a home-mover (not a first-time buyer) pays is currently £8,258 (based on the average asking price of £365,173)
• 7% of homes on the market are currently exempt from stamp duty for all home-movers (excluding second homes, anything £125,000 or below)
• 45% of homes on the market are currently exempt from stamp duty for first-time buyers (anything £300,000 or below)
• The percentage of properties that are on the market by the current different stamp duty bands are as follows:
  • £125,000 and below – 7% of properties
  • £125,001 to £250,000 – 26% of properties
  • £250,001 to £925,000 – 60% of properties
  • £925,000 – £1.5 million – 5% of properties
• Anything above £1.5 million – 2% of properties
• If the stamp duty cut was on all properties up to £500,000, it would mean 74% of properties in England would be exempt from stamp duty

How did the industry react to the news?

On the proposed changes to the levy, Jeremy Raj, National Head of Residential Property at Irwin Mitchell, said:

“SDLT is a bad tax that inhibits the market and is excessively complex and unfair. There are not many levers available to the Government right now, but this is a good one to pull. From what we know so far, this is likely to stimulate confidence and activity in the market, both of which are needed in order to help people secure the accommodation that is right for them, and to help prevent further backsliding of the economy. We eagerly await the detail as the industry as a whole was not expecting this, and requires certainty as to exactly what is proposed and how it will affect current transactions, as soon as possible.

Clearly, however, this is still just a timely intervention during somewhat critical circumstances. The overall position with regard to a terrible lack of housing supply, high energy costs, environmentally poor housing stock and the need for a stable, well-funded planning system remain key issues that it is vital the Government now moves to the top of their agenda.”

Rightmove’s property expert Tim Bannister said:

“With demand starting to soften slightly over the past few months, and headwinds anticipated to grow as 2022 draws to a close and we enter 2023, any help to reduce the cost of moving will no doubt be welcomed by buyers if a stamp duty cut is announced on Friday.

Sellers who may have been considering listing their property for sale may be encouraged to push on with their plans given the potential for increased demand, in turn bringing much needed stock to a currently supply constrained market.

If the cuts benefit homes in higher price brackets, it would help those trading up more than it would help first-time buyers. With rising interest rates and cost of living it could be welcome to those looking for a bit more buffer to find the home they want, but if prices rise further then then that extra money could quickly be swallowed up.

The impact on supply, demand and ultimately prices will depend on the detail, including if it will it extend to second-home buyers and investors.”

“We saw what the stamp duty holiday did to the market during the pandemic, and I have no doubt such a move will stimulate demand again,” said Andy Sommerville, Director of Search Acumen. He continued:

“I don’t think market activity will reach anywhere near the same dramatic peaks as it did in 2021, not least because available housing stock is extremely low, which puts a natural cap on how far transaction volumes can rise. But, without supply-side reforms to boost housing stock, stimulating demand will mean more buyers bidding for the same number of properties, which can only mean one thing for house prices.”

That one thing, Sommerville said, is a further escalation in prices:

“While many buyers who might have given up on homeownership will be buoyed by an SDLT cut, we need to be careful that stimulating demand, unchecked by measures to boost housing stock, doesn’t create an affordability crisis of runaway house prices, immediately following one of the most incredible periods of price growth in modern history.

We also need to be careful that buyers who take advantage now don’t find their housing costs become unaffordable in years to come. Interest rates historically have averaged more than 4% and we’re expecting another rate rise from the Bank of England tomorrow, so buyers do need to be aware that savings they make today through SDLT may be cancelled out through elevated mortgage repayments in years to come due to elevated house prices and borrowing rate rises.”

With regards to the impact on conveyancers, Sommerville said the cut would “cement a new normal for the sector” insofar as caseloads. He added:

“Our latest research shows that 2021/22 was the busiest financial year on record for the conveyancing sector and while we might not reach those heights again given the unique circumstances at play, the market dynamics and direction of Government policy indicate we are in for a period of sustained market activity. This should provide clear impetus for law firms to re-evaluate their operations, and look for ways to utilise readily available technological solutions to relieve caseload pressures, reduce transaction times and increase profitability.”

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, suggested that a cut to stamp duty would do “more harm than good”. She said:

“Buyers are unlikely to be unhappy at the prospect of a tax cut, but if the government chooses to cut stamp duty in an effort to stimulate the housing market, there’s a risk it could do more harm than good.

It’s easy to see why the government is concerned about the housing market. We’ve seen demand fall consistently since May, when rocketing bills, rising house prices and ever-increasing interest rates started to take a toll on buyer enthusiasm. There’s a risk that if rate rises accelerate, pressure on buyers could reach a tipping point, where demand dries up.

We know from very recent experience that a stamp duty holiday can stimulate demand. However, the only reason these holidays work is because people feel they have a small window of opportunity to take advantage, otherwise they’ll miss out. The point at which they think they can just wait for the next one, they will start to become less effective.

Even if it does stimulate demand, it overlooks the fact that the real brake on the property market is a severe shortage of supply. With an average of 36 properties on each agent’s books, we’re still close to an all-time low in the availability of property for sale. Driving demand without addressing supply would risk more buyers chasing a tiny number of properties, which would push prices up.

By ramping up prices at a time of rising mortgage rates, the end result would be higher monthly mortgage costs, which would be increasingly unaffordable. And the stamp duty holiday wouldn’t help on this front. This in itself could be enough to put buyers off, and if it deters enough of them, it could end up having the opposite impact to the one that’s intended.”

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