The report will be released in full over the coming weeks but with the Autumn Statement approaching, LCP have fast tracked the release of some key findings.
There is a profound spike in transactions just under the 3% stamp duty rise at £250,001. 930% more transactions take place between £240,000 and £250,000 than between £250,000 and £260,000, at which point transactions begin to resume a normal pattern. This is based on Land Registry’s Price Paid Data, which records every sale that transacted in England and Wales (less probate sales, company transfers and repossessions).
This research demonstrates that in the absence of a tax hike, only 5,777 transactions would have occurred at the £250,000 price point during 2012. However, the distortion caused by the increased Stamp Duty rate led 19,643 sellers to duck under the ceiling last year to effect a sale, 3.5 times more than would be expected. A further 9,721 properties are estimated to have not sold at all, made up of buyers who could not afford to take such a heavy price discount. Almost 25,000 people last year were adversely affected at the expense of the Exchequers balance sheet. All of which could have been avoided by a ‘soft’ introduction of higher taxes.
Since the introduction of Stamp Duty at £250,001 in 1997, the research uncovers a consistent price suppression between £250,000 and £260,000, before a property becomes ‘saleable’ at its genuine market value. The flat-lining of cumulative transactions in England and Wales in 2012, between these two price points, clearly demonstrates this.
Analysis of Prime Central London, whose average price crossed the £250,000 threshold shortly after stepped Stamp Duty bands were first introduced, gives the most insightful snap-shot of the punitive nature of this tax. Each time the tax rate at £250,001 increased; from 0% to 2% in 1997, from 2% to 2.5% in 1999 and then to 3% in 2000, the spike in sales under £250,001 became more and more pronounced.
LCP’s forecasts show that, on current growth levels, 52,654 more households will reach £250,000 over the next five years. When they decide to sell, they will be faced with a very tough decision between selling at a discount, or simply not selling at all. The first course of action means the homeowner may simply be treading water when they buy a new property as they are unable to trade up. The second course of action is inaction. Either way, the doors remain firmly closed to first time buyers.
LCP has commented that:
"The Government need to grasp the mettle and reduce the tax hike at £250,001. Whilst it will have a cost to the Exchequer, it will be a drop in the ocean compared with the stimulus packages already introduced. The long term impact for these packages is unknown and probably dangerous, whilst reducing the Stamp Duty rate is guaranteed to make a difference for good, for second steppers and first time buyers."
