Rightmove has asked the government to carefully consider the impact of any changes to property taxation to avoid risking disruption to the housing market.
The property platform has analysed the impact of the proposed national property tax and so-called mansion tax, and warns that any buyer savings would be wiped out by sellers increasing asking prices to cover their costs – with a particular impact on first-time buyers.
‘According to our data, around a third of all sales currently going through the legal system are for typical first-time buyer properties, so it’s a big part of the market which supports the wider ecosystem’, said Johan Svanstrom, Rightmove’s CEO.
“Affordability is very stretched and so putting the tax burden onto the seller could be beneficial for first-time buyers, however the saving could be wiped out if sellers simply build some of the charge into a higher asking price.”
According to Rightmove’s analysis, just under a third (30%) of homes for sale in England are priced at over £500,000 and would be subject to the proposed new property tax. In London, that figure rises to 59%, but drops to just 8% in the North East.
‘If the responsibility for property taxes shifts onto the sellers’ side, the government will need to really think through how this transition will be phased in to avoid slowing down the mass market’, Svanstrom added.
“Those who have recently paid stamp duty as a buyer and would face paying property tax as a seller in the future would clearly be at a disadvantage. As we’ve seen around moments such as stamp duty changes, we could see some distortion in the market for properties at or close to the £500,000 mark if this does end up being the threshold, with movers at this price range understandably keen to avoid the new tax if they can.”
Distribution of properties that would be subject to the so-called mansion tax is similarly uneven: a tenth of homes for sale in London are in the £1.5 million price bracket, as opposed to 0.1% in the North East. The national average sits at 1%.
‘As our real time data shows, a proposed mansion tax would only affect a small proportion of the market’, Svanstrom pointed out.
“However, the government needs to be cautious over the cumulative effect of taxation on higher priced areas of the country as it simply risks stalling this part of the market, since the importance of mobility for people and the overall economy is strong in those areas too. A slower market can affect all types of movers, from first-time buyers to key workers and families, even if a tax is aimed at higher value properties.”
A further impact on higher-value properties is the lack of incentive for their owners to downsize, Svanstrom warned. He explained:
“We need to make it easier and more attractive for those at the top of the market to consider downsizing if they are in a position to do so. There is no real incentive for someone in a large home to downsize to a smaller one unless they truly need to and can still afford the stamp duty bill. The current rumours to stamp duty changes would only seem to exacerbate this, as it may deter some at the top of the market from moving if they would then face a new annual tax.”
And, he concluded, there is doubt surrounding the financial benefit to the government of the proposed changes.
“The key question is whether these changes would actually generate more income for the government. It depends on the designs of reforms for taxes and fees, as well as the rates, but if they reduce mobility through these changes, they risk having the opposite effect and losing out in the long run.”
