House sales are falling post-Brexit:could suspended stamp duty revive property sales and stop buyers from being priced out?

Following Brexit, we could see stamp duty suspended next year to kick-start falling housing sales and stop foreign investors pricing Londoners out of the market.

We won't see the true impact of Brexit on the property market for at least four or six months. This is how long it takes to launch properties at new prices, put them under offer, exchange and complete the sale and report the data to the Land Registry for publication. 

There is no question that a collapse in the volume of property sales, leading to the risk of a wider retail recession, has spooked the Bank of England into cutting interest rates and printing money. The numbers are stark. The Land Registry has just published April’s year-on-year figures for all sales in each London borough. In April this year, Kensington & Chelsea, across all price brackets, saw sales volumes down 72 per cent on April last year. And April 2015 was already down 41 per cent on April 2014. The stamp duty tax hike which caused this crash in sales was imposed on December 3, 2014.

The tax hike hasn’t only impacted rich areas as intended. For England as a whole, the average number of sales for April between 2000 and 2007 was 70,000 to 80,000. April 2008 and 2009, during the “Great Recession”, produced 53,000 and 37,000 sales respectively. April 2014 recovered to normal levels at 71,000 sales. The new tax burden introduced in December of that year, and the further hike for investors in April this year, led to the April 2016 sales number for England slumping to just  42,000 — similar to 2008, the year of global finance collapse.

Such low sales numbers are having a devastating effect on tax revenues: few sales mean less stamp duty is paid. Because of this, it would be surprising if stamp duty is reduced in the coming Autumn Statement.

The picture is grim in London, too, where a large proportion of English buyers have vanished, driven away by the current high levels of stamp duty. Sales volumes generally have collapsed across the capital by nearly half, with Britons preferring to stay put rather than move and pay the tax. Last year the stamp duty changes also led to a 15 per cent price drop in the prime market. The same “correction” is now cascading into London’s mid-market, despite its not being taxed as harshly. 

When former Chancellor George Osborne massively increased tax on property above £925,000 to 10 per cent, and reduced tax for property below £925,000 to five per cent in 2014 — and then added a further three per cent for investors in April this year, this may have been an earnest attempt to cause the First Class compartment at the front of the property train to slow down while speeding up the following carriages. Alas, the result was a crash in sales volumes and not just a drop in prices at the top end of the market. 

The collapse in the volume of sales in London is now putting pressure on the wider retail economy as it did in 2008, and is starting to impact on growth and investment, as well as upon new housebuilding. The limited response  by the Bank of England has been to loosen monetary policy. On the back of the fall in the pound following the EU referendum and a loosening in monetary policy, enquiries by foreign investors are increasing. Having compared the number of enquiries received by its London office during the months before and after the Brexit result on June 24, my firm, John Taylor, found a 1,200 per cent increase in property enquiries from prospective buyers, 80 per cent of whom had international phone numbers. 

This level of foreign interest will continue as long as the pound is down against the dollar, and the currency window will itself remain until the consequences of the Brexit negotiations become clear. 

To counter this there is a large increase in enquiries across John Taylor’s European offices from UK buyers, as stamp duty in France is only 5.8 per cent, compared with 15 per cent in London if you are buying a second home. The Algarve is also taking off, and Spain’s property market is recovering well. Unfortunately the influx of foreign investors does not nearly “make up a market” or replace the number of English investors now looking elsewhere or just putting off moving, it simply means that we are able to trade a little more, and that prices at the top end don’t have to fall further. That will remain so until we have tax reform. 

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‘Osborne’s actions have caused a crash in sales volumes and not just a drop in top-end prices’ (PA)

A tax raid on the prime market in 2014 to stop a price bubble in London, dampen foreign demand and raise tax revenues, is now producing the worst of all possible worlds. Outcomes include: an overall collapse in sales across England and in all price brackets, leading to a potential wider retail recession; a collapse in tax take, and a massive increase in the proportion of foreign investors compared with local buyers in central London, as they are the only ones able to afford the tax as a result of the declining pound. We will now see a sharp reduction in property on the market as the English decline to buy until there is more political stability and tax reform.

Former Chancellor Norman Lamont suspended stamp duty in the 1991 recession to kick-start sales. Something similar could happen next year. Following such a suspension, once stamp duty is restored, it could be two-tier: one tier of tax could be for UK residents on the old stamp duty rate of five per cent, and the other tier could apply to international investors at a higher tax rate. 

This, of course, is presently not allowed under EU law, but following Brexit it would be an obvious way to tackle a reduction in sales volumes and supply, while also offering a politically acceptable way of preventing foreign investors from making housing in the capital unaffordable for Londoners.

  • David Adams is managing director of luxury market estate agent John Taylor UK.

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