Experts divided on SDLT’s impact and proposed reforms in property market

The debate surrounding the Stamp Duty Land Tax (SDLT) has recently intensified, sparking a divided response among policymakers and industry experts. Its ongoing discussion centres on whether it should be completely abolished or restructured to address various challenges and controversies.

Research published in August estimated that, despite changes to stamp duty thresholds implemented last September designed to save homebuyers money, the nation has still paid an estimated £884.3 million in the following six months, climbing to £2.9 billion over the last year. These figures have raised questions about the effectiveness of the changes and their impact on the housing market.

In the Budget published in March, Chancellor Jeremy Hunt “missed an opportunity” to assist tens of thousands of “would-be home buyers” as the subjects of housing and stamp duty were ignored, said the Homeownership Funding Association (HFA). This omission has added to the ongoing discussions about the role of SDLT in supporting homeownership.

More recently, the National Association of Property Buyers (NAPB), a property buyers association, has made a series of demands related to SDLT and housing policy. They have called on the next government to reduce stamp duty, enhance tax relief for “green” landlords, and embark on a campaign to turbo-charge house construction. These demands are part of a five-point plan outlined by the NAPB, who argue that these actions should be taken within the first 100 days by the incoming government.

The NAPB’s intervention comes amid growing concern about falling house prices across the UK. Jonathan Rolande, from the NAPB, warned that without a clear roadmap, prices could “fall every month in 2024,” underscoring the urgency of addressing the housing market’s challenges.

These recommendations from the NAPB coincide with political developments, as the Labour Party recently pledged to turbo-charge housebuilding if they win the next election. This indicates that housing policy, including SDLT, is likely to remain a prominent issue in the political and economic landscape.

One of the key proposals by the NAPB is to reduce Stamp Duty for downsizers by suspending full-rate Stamp Duty for “last-time movers.” This would increase the availability of larger, family-sized homes in the market. The offer would be limited to a 12-month period, aligning with efforts to boost the property market and cater to the needs of older homeowners who wish to downsize. This proposal echoes previous calls for a “one-move free” scheme for over-65s, similar to the scheme for first-time buyers for homes valued at up to £425,000 in England and Wales.

Emma Bough from Muve, emphasised the current state of SDLT and its impact on the property market. She said that SDLT remains a “constant burden on the home-mover”, particularly those purchasing properties above the 0% threshold. The 5% rate applied to properties ranging from £250,001 to £925,000 is seen as disproportionate for individuals with average incomes. Bough argues that this lack of incentives for non-first-time buyers is causing stagnation in the housing market. She continued:

“Removing SDLT altogether and redistributing the burden elsewhere (for example increased CGT rates) is one proposal. Less controversially, increasing the 0% threshold to an amount well-above average prices, tapering of the threshold when tax becomes payable to ensure a more level-playing field for average home-buyers would all see a drive in the market.

The effect on the market of the SDLT holiday in 2021 was staggering. It was evidence alone that SDLT was a huge barrier to people moving so any changes to reduce the burden on the buyer, particularly as mortgage rates are at an all-time high for the current generation of home movers, will affect the industry. Of course, the greater the demand the greater need for supply, so sellers can only benefit and find that there is more flexibility for negotiation with their potential buyers if thresholds and ‘relief deadlines’ aren’t so restrictive.”

Peter Ambrose from The Partnership Limited stated that SDLT has “always been the villain of the piece”. Even when temporarily scrapped a few years ago, it failed to gain widespread approval, as the surge in transactions it triggered came with its own set of challenges. Ambrose cautions against simplistically identifying SDLT as the sole solution to market slowdowns, noting that its impact is intertwined with various factors. He also points out that there has been no conclusive research on the effects of SDLT holidays on property transactions.

Regarding proposed reforms or changes to SDLT, Ambrose suggests that the approach should depend on which part of the market policymakers aim to address. He cites the lack of evidence that scrapping SDLT for first-time buyers stimulated the market, suggesting that it may have merely driven up house prices. He added:

“A SDLT holiday might give the industry the psychological boost It needs.

The harsh reality is that any change to SDLT is extremely unlikely. It’s the easiest place for people to look as a boost to the market, but we need to remember that it has always been the case.  There are regular calls for SDLT changes, but my view is that the government really shouldn’t get involved with the housing market.  Every time they do, the laws of unintended consequences kick in. My personal view is let the market find its way.”

Paul Sams, Head of Property at Dutton Gregory Solicitors, underscores the stagnant state of the market and the need for incentives to encourage buyers to sell and purchase homes. Sams advocates for changes to SDLT, proposing an exemption of up to £600,000 for first-time buyers and revised rates for non-first-time buyers. He continued:

“I understand that this is potentially a controversial stance, but I do believe that all parties within the transaction process, including us conveyancers, need to speed up. If we all have a common goal, which we should be doing for all our clients, agents, and lenders, we should aim to get them through the transaction of a property as quickly and accurately as possible. If there is more activity in the market, and the process is made less stressful everyone benefits, not just commercially, but emotionally as well.”

Sams also highlights the challenges faced by the buy-to-let market, where many landlords are selling their portfolios and exiting the market. He suggests that the government should “reconsider punitive rates that are charged on those buying to let”.

Despite recent cuts to SDLT,  Peter Moretti, Senior Conveyancer at DC Law, believes that it is not having a substantial impact on the market. He points out that prevailing lender rates remain a “significant concern and as expected this is affecting first-time buyers, as they contend with affordability concerns around high mortgage repayments”. He continued:

“I believe that changes to the Stamp Duty Land Tax (SDLT) at this juncture will not have a positive impact on the market. With interest rates predicted to fall below 5% in the near future, the market is hopefully poised for a more favourable outlook. With this in mind, any reform in stamp duty is unlikely to make a substantial difference.”

While acknowledging that one-third of homes in England are now exempt from SDLT due to recent changes, Moretti highlights that this exemption hasn’t led to a significant reduction in property prices over the past six months. He suggests that instead of focusing on stamp duty adjustments, the chancellor should prioritise reducing the inflation rate, which is more likely to have a significant impact on the property market. He added:

“Despite the desire to impact the current state of the UK property market, I think it’s important that the discussion doesn’t focus solely on short-term gains. Long-term planning for housing policy and tax reform is essential to ensure a sustainable and predictable environment for buyers, sellers, and investors. With this in mind, creating stability should always be the priority for policy-makers. Our main goal as Conveyancers should be to speed up the transaction process for our clients, which is facing delays due to the current market conditions.”

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