The proof: Stamp duty hike brings in LESS for Treasury
Sales of costliest houses dry up as top rate of levy on property soars
THE Treasury is earning less from the sale of Britain’s poshest homes after the Chancellor’s shake-up of stamp duty rates last winter, according to analysis for The Mail on Sunday by a leading estate agent.
While rates were cut for the vast majority of homes, those fetching £1million or more incur a higher rate. But this has seen the number of upmarket house sales plunge with prices weakening and the Government’s income from the richest property buyers dropping.
And the sector is set for a new blow next year as new European Union rules threaten the ability of foreign buyers to get a mortgage.
The EU’s Mortgage Credit Directive means that any lender offering a sterling loan paid for by foreign currency income will have to monitor the exchange rate. If the rate moves against the borrower by more than 20 per cent the lender has to offer the opportunity to switch the loan into the foreign currency.
This has prompted lenders including Halifax and Nationwide to pull out of the market. London estate agents are understood to be watching the issue closely. Ray Boulger, at mortgage broker John Charcol, said many bankers and wealthy foreign buyers in London would be hit by the move, adding: ‘They may get their basic pay in sterling, but bonus in dollars, so will have a limited choice of lender.’ The looming impact of the rules comes as estate agents, wealthy buyers and sellers and brokers are already reeling from the effect of the stamp duty changes.
The analysis produced for The Mail on Sunday by upmarket estate agent Knight Frank shows the increased tax rate may also be having a counter-productive effect on revenues for Chancellor George Osborne.
For the first seven months of this year, the value of property bought and sold in London’s richest boroughs of Westminster, Kensington and Chelsea, and Hammersmith and Fulham is down by almost a third, cutting the stamp duty revenue by almost 10 per cent.
The agent revised its estimate of prime central London price growth down from 4.5 per cent to 2 per cent last month. Tom Bill, head of London residential research, said: ‘Buyers have become more circumspect and stringent in their requirements due to the stamp duty increase.’
The weakness in stamp duty reve- nues in London’s richest boroughs will be seized on by critics of the Chancellor’s reforms, but with transactions up more broadly Osborne may argue that higher revenues elsewhere cancel out the losses and that it is fair to make the wealthy bear a heavier burden.
Prices of central London property have soared over the past decade, as foreign money poured into the capital as a refuge from financial markets turmoil. But there are signs the run has come to an end, with higher taxes, a stronger pound and fears of a property bubble putting a dampener on activity.
The number of sales of homes worth more than £1million in London fell 15 per cent in the first half of this year compared with early 2014, Lloyds Banking Group said.
Sarah Deaves, director of private banking at Lloyds, said there had been a ‘pronounced slowdown’ adding: ‘This may be the effect of the new stamp duty rates and uncertainty generated by the Election.’
Osborne changed the stamp duty regime in last year’s Autumn Statement, with the tax no longer calculated as a simple percentage of the overall value of a home, but rising incrementally. The increments rise to 12 per cent on the value of homes worth more than £1.5 million.
A £1.5million home that before the changes would have cost its buyer £75,000 in 5 per cent stamp duty, now costs £93,750. A £3million property that would have cost £210,000 in the top 7 per cent bracket will now incur a tax charge of £273,750.
But it is the most expensive properties that are hardest hit with the tax on a £25 million house rising from £1.75million to £2.91million.
The weakness of the Russian rouble and many Far Eastern currencies has reduced the pool of buyers too, while UBS warned last week that London prices were in a bubble.
The investment bank said: ‘Average real prices have soared by almost 40 per cent since the beginning of 2013, more than offsetting all losses triggered by the financial crisis.’