George Osborne brought early Christmas cheer to the majority of home buyers within the UK by announcing his new Stamp Duty Land Tax earlier this month. Whilst many people have praised Osborne for scrapping the old ‘slab system’, the news of the overhaul has created chaos in the upper echelons of the market as buyers realised the jump in tax for properties worth over £937,000.
The new regime means that stamp duty is no longer paid on the whole value of the property and the cliff-edge point where one band met the next no longer exists. This has been implemented in order to discourage homebuyers artificially keeping prices just below the £250,000 threshold. Most buyers will now be paying around £4,000 less tax on their new homes except those buying a property over the price of £937,000 who will now be paying more as the tax increase slides up to from 4% to 12%.
So, we know what the impact is for buyers; most people will pay less but the buyers of some of the more upmarket London estate agents will be hit the hardest… But what does this mean for Estate Agents and developers? Some estate agents have said their phones have been ringing continuously with people who had not previously considered buying now looking to buy. On the other hand, on the day of the announcement, several estate agents experienced panic exchanges before midnight from those buying houses at the higher end. An MD within a major house builder was one of many who found himself negotiating on the morning following the change with customers who had already agreed a sale. These buyers were demanding money off high end properties in order for the sale to still go through with requests of up to £50,000 off the original agreed price.
The worry for those selling at the more affluent end of the market has already been evident in the slowing down of exchanges due to the uncertainty ahead of the general election and discussion of the mansion tax; so for some higher end agencies and developers, this is just another obstacle they have had to face. High-end property prices within central London fell 0.2pc in November this year demonstrating the anticipation of a harder market. With the new SDLT on top of this, a prediction from one property analyst was that the London £3m-£10m price band will be where the changes will have the biggest impact and the market will come to a near standstill which will affect estate agents, buying agents and developers in this sector. In the £10m to £15m price band, he predicts that the market will slow but the effect will be less and the impact will be shorter. With regards to the top end bracket (£15m+), he said effects (if any) will be minor.
However, a couple of weeks after the new system has had time to settle, it would seem that it is not all doom and gloom for those high end agencies and developers. This has been demonstrated in the share price of Berkeley Homes, a key client of ours, which fell 76pc on the Wednesday of the announcement but swiftly recovered. After having spoken to a couple of our clients in high end developers, it would seem that the biggest initial problems came from the fact that buyers and analysts alike had not factored in Mr Osborne’s punitive stamp reforms - the high end market was not prepared. Being caught off guard meant that agencies and developers originally considered knocking several thousand pounds off the prices of their properties in order to attract sales. It would now appear that this is not necessary, however, the companies which already have stock or have launched will find a problem due to the oversupply of luxury homes worth £3mil+ in London even before the SDLT . Those who are launching will no doubt have to consider areas where they might be able to cut prices and find cheaper alternatives during developments such as within the interior design stage or the reconfiguration of developments.
The changes to the old, unpopular ‘slab system’ will clearly affect the London market in particular due to its sky high property prices. This will potentially have a broader impact on the rest of the London economy as international investors might now choose to inject their money elsewhere in Europe.
Time will tell to what degree this reform will change the building, launching, buying and selling of properties worth above £937,000.