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Housing Watch: Clearing the bottleneck

Stamp duty is the biggest barrier to a dynamic, liquid market.

The housing market is in a bit of a state: young people desperately want in on it but most cannot even dream of it, with the sky-high rents they are being charged by the buy-to-let generation only adding to their affordability woes.

One big issue, of course, is supply. We are simply not building enough houses to meet demand. Indeed, despite countless announcements from the government that it will build at least 300,000 new homes each year, these targets are never met, so it will take years for the supply to catch up.

The government has introduced some successful measures, the main one being Help to Buy which, since it began in 2013, has assisted 160,000 first-time buyers to get on to the housing ladder.

However, in terms of meeting demand, Help to Buy is only useful for those who want to buy new builds. It does not open up the market for freer movement.

All of that said, I believe the biggest barrier to a more dynamic, liquid market is stamp duty.

The curse of stamp duty

There has been a lot of talk recently about older people taking up all the family homes. According to the government’s “under-occupancy” measures, 51 per cent of owner-occupied households in England are under-occupied – up from 39 per cent in 1995.

This means many older couples are rattling around in large homes while there are families that desperately need them.

But when you consider an older couple cannot buy something that costs the same as their original house without spending money on the tax but can stay where they are for nothing, it begs the question: why would they move?

Stamp duty brings in around £8bn a year to the government’s coffers. That sounds an awful lot, but when you consider it gets more than five times as much from duties of whisky, cigarettes and petrol, it puts things into perspective.

Many of these older people who cannot justify the cost of downsizing are staying put in homes highly unsuitable for their needs, adding extra pressure to health and social services.

There are also knock-on costs from other people not inclined to move because of stamp duty. For example, why move for a job that might not last? Instead, people are more likely to either not take the job, or take it but opt for a longer commute, adding stress to both themselves and the transport network. In short, stamp duty needs to be lower for everyone or abolished.

It begs the question: why would an older couple move?

Yes, the government has made a start by cutting stamp duty for first-time buyers, but what about the rest of the chain? By cutting stamp duty for this group of
people, all you are really doing is forcing first-time buyer home prices up as sellers try and add the money ‘saved’ on to asking prices.

This, in turn, increases the prices of all other homes in the chain, pushing the stamp duty up on them too. The average stamp duty bill has more than quadrupled in the past 20 years. In London, it has increased by more than 12 times.

There is also the fact that house prices are dropping in some areas. Paying stamp duty on an asset you think may go up in value is hard enough, but paying it on something you think may go down is even harder.

A virtuous circle

If the government wants to get the economy moving, it needs to free up housing transactions. Because when people move house, they spend in other areas too –
everything from new carpets, sofas and white goods to paint, wallpaper and curtains.

Abolishing or at least significantly reforming stamp duty would not only kick-start the housing market but also provide a hugely positive knock-on effect for the economy as a whole.

John Phillips is Group operations director of Just Mortgages and Spicerhaart


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  • John Emmett 25th July 2018 at 5:46 pm

    Those involved in the mortgage market have known stamp duty is a dampener in property transactions for some time. Why move if you don’t have to and pay all that duty?
    The treasury/government will not reduce the rates charged. They don’t wish to have mainstream headlines that they are reversing policy. In addition they have been seduced by the receipts from the London market although now cooling. London not referred to as the money laundering capital of the world for nothing.
    A further barrier is that housing has to have long term planning and recent governments cannot plan more that 4 or 5 years in advance.
    The position of housing minister a revolving door position. Somewhere to park a mediocre minister for a few months until a better position turns up.
    Grant Shapps was great, wasn’t he?