The Long View
Much has been written about the short-term impact of the stamp duty changes that took place in December 2014 and the 3% levy on additional homes in April 2016. In fact, there has been a series of eight increases and they have caused a structural shift towards low sales volumes, with consequences for market liquidity.
The PCL market was strong leading up to the Global Financial Crisis. Indeed, transaction activity for the eight years prior was running at over 5,000 sales a year. This was a typical level for the liquid and active market of PCL of the past. But things have changed.
Transaction volumes fell sharply 2008 to 2010 (average 2,900 per annum) but unlike prices, which bounced back, they stayed well below their pre-financial crisis ‘norm’. After the latest stamp duty changes, levels dropped further (2,350 in 2016).
Stamp duty is not the only reason for fewer transactions. Exceptionally strong asset performance and low interest rates also play a part in reducing turnover. With an impressive track record of capital growth, a PCL property is a covetable asset to hold for the long term and owners in this high value market are rarely forced sellers, so any short-term weakness in pricing means fewer properties brought to the market. Overseas buyers hoping to make opportunistic purchases while sterling is weak, will find their choices limited.
The Longer Term Perspective
Since 1995, there have been numerous changes to Stamp Duty Land Tax (SDLT), of which eight have increased the stamp duty payable at the top of the market.
The average prime central London (PCL) price back in 1995 was £260,000 and the stamp duty payable at that time was 1% (just £2,600). In 2016, the average price of a property in PCL was £2.1 million, with stamp duty of £163,000 (an effective tax rate of 7.9%). If this is a second home, the stamp duty rises to £226,000 and an effective tax rate of 10.9%.
There has been an eight-fold increase in average PCL prices, versus a 63-fold increase in tax payable (or 87-fold increase for a second home).
To download the full Humberts Market Insight PCL Report, please click here.