Why is the market above £2million in London so difficult at the moment?

Contrary to press reports the market in London below £2million is doing very nicely thank you.  Anything sensibly priced will sell relatively quickly to a number of buyers. Frankly, with the stable outlook for interest/mortgage rates there is not a cloud in the sky, particularly, as this part of the market is immune from any potential Mansion Tax threat.

Above £2million the market gets progressively sticky to the extent that above £10million there are very few buyers at all. Agents and conveyancing solicitors are all complaining that turn over is vastly reduced.

Now I wonder if it’s anything to do with Stamp Duty changes in the 2012 Budget?

Of course it is.  Only a fool would not see that this huge tax hike has made a fundamental change in buyers sentiments.  Here’s a scenario for you; if you live in a £2million house how much does it cost to move to a £3million house in order to get extra accommodation for the family?

I’ll make it easy for you, it will cost you £1.3million and £300,000 of this is made up of Stamp Duty, solicitors and estate agents fees.  This is the reason why people are not making small incremental moves upwards since £300,000 net (£600,000 gross if its income) is an awful lot of money to find to pay the Exchequer and the professionals.

What do people do instead?

Its simple, they spend the £300,000 on home improvements, ground and first floor extensions, loft conversions and basement conversions.  You can do some of these even without formal planning consent but essentially this amount of money could buy you at least a 1000 square foot of useable accommodation that should substantially increase the value of your property.

In certain parts of London if your original house was 2000 square foot and the newly extended one 3000 square foot the value could increase to £3million making a £700,000 profit on the money that would have mostly gone to the tax man.

This is one of the reasons why property owners are thinking twice about moving and why this is having a damning effect on the liquidity of this market.

We all know that the Chancellor was appeasing the Lib Dems by imposing this Stamp Duty hike (usually easy pickings for the incumbent government) but the damaging effect of too greater hike is being felt in many sectors.

Remember that liquidity and the health of the property market generators of the UK’s economic growth and success.