Are property transaction costs stifling the market?

 

Are property transaction costs stifling the market?

Following the tax changes in the budget of 2012 Stamp Duty for properties over £2million has risen by 40% from the previous level of 5% to now 7% (for non corporate bodies and 300% for corporate bodies to 15%).  This means that if you sell a property and buy another (at this price level) you could find that 10% of the available money to spend has gone on expenses (7% Stamp Duty, 2% agents fees and the balance solicitors fees).  The result is that if you sell a property for £2.5million you only have £2.25million of available monies to spend on the next property.

This is a big disincentive and is one of the reasons why the market above £2million is moving at a totally different pace as those below this barrier.

Less transactions means less liquidity that equates to longer periods for the sale of properties, longer chains and more unpredictability.

As you rise up the value range to £10million the problem gets slightly worse and the spectre of Mansion Tax, that could be imposed by a socialist government in 2015, starts to have its effect.

The UK economy is driven by 60% of retail spending and the buoyancy of the housing market is an important generator for this.  As long as the property market is growing by 3-5% this is sustainable for the future and is part of a healthy thriving market where debt shrinks in relation to equity.

If transaction costs prevent people moving they will stay put and this means that there is less active property on the market, less supply and, if the demand remains fulsome, it will push up prices.

For governments who need cash urgently Stamp Duty is an easy target, it is simple to raise and it’s instantaneous.  But it could be self-defeating and you could just kill the ‘golden goose’.