Last week Boris Johnson threw a tactical hand grenade into the housing market.
The journalist and former Mayor of London, who has a well-earned reputation for factual vagueness, has dived headfirst into one of the most controversial and complicated aspects of the property industry – SDLT or stamp duty.
On Friday he revealed that a Bojo government would abolish the duty on houses sold for under £500,000 and revert the rate for higher priced properties from 12% to 7%.
The proposals, which are the brainchild of ardent Brexiteer and small government enthusiast (and former housing minister) Dominic Raab, are designed to reawaken the wider housing market and also give the prime central London market an injection of new activity too.
It would also be a huge boon for estate agents, property developers and house builders all over the UK, many of whom have been watching their local property markets grind to a halt over the past two and a half years as George Osborne’s changes to the stamp duty system weakened transaction levels.
“I think most people in the industry believe Osborne shot himself in the foot when he raised stamp duty for properties selling for £1.5 million or more because certainly in central London transactions have reduced significantly since it was introduced,” says Brendan Roberts of Chelsea-based Aylesford International.
Johnson has said his stamp duty cut would be paid for out of the £25 billion ‘headroom’ fund that the current Chancellor Philip Hammond has built up in recent years to deal with the likely effects of Brexit.
But Hammond yesterday warned both Johnson and his rival Jeremy Hunt not to get into a ‘tax cutting’ bidding war that the country could not afford.
Nevertheless, it’s a classic Johnson vote winner. Tactically brilliant but light on detail.
For example, does he mean all duty paid for homes selling for less than £500,000 would be exempt, or just the band between £250,000 and £500,000?
And would it exclude Help to Buy, which in London includes properties up to £600,000? And what about the 3% extra Stamp Duty on second homes – would that be swept away too?
But the proposed measures are bold, at least. Only 85,000 of the one million homes worth £500,000 or more are sold every year, so at one stroke Johnson would be exempting at least 70% of the sales market from the duty, if you throw in the existing exemptions for first time buyers.
Johnson’s proposal, which he’s said would be confirmed at an early Autumn budget announcement in September, may not win him friends at the Treasury, which during 2018 saw an 8.6% reduction in stamp duty tax receipts.
“Ironically as a by-product of the ex-Chancellor’s actions, the Treasury has experienced a substantial reduction in property tax revenue receipts causing many to question the government’s original motive,” says Giles Cook, Head of Residential Agency at agency Best Gapp.
Official figures show Treasury receipts from stamp duty were down £800 million last year, compared to the year before.
Johnson’s decision to reduce the stamp duty for high-end homes is more curious. It’s a low-volume but lucrative transactional market dominated to a significant degree by foreigners who rarely have the right to vote in the UK.
Many are wondering, therefore, which electorate he is appealing to. “There are domestic buyers in central London but they’re a small group,” says Brendan Roberts.
Charles Curran, MD of Chelsea-based estate agency Maskells who, before embracing property worked at Bear Stearns, Bank of Scotland and Société Générale says: “I’m not sure what his game plan is; my sense of it is that he’s saying whatever he needs to in order to win, and I think Mr Hunt may be going down the same road.
“Boris is appealing to his core group of Tory supporters who either have the wealth or aspire to it.”
The biggest worry for London’s prime agents is that Johnson’s announcement risks putting the whole market into deep freeze until a new Prime Minister is chosen by the Conservative party and their stamp duty intentions put into action.
“I think it’s irresponsible – it’s akin to the chairman of the Bank of England saying they’re going to cut rates in six months’ time and then expecting the market not to react,” says Curran.
“Boris should have been more careful when making comments that affect any market.
“If you know that in three or six months’ time a potential new Prime Minister is going to cut stamp duty at the top from 12 to 7%, are you going to buy now? Of course not.
“I was going through some properties this morning and worked out one attracted a stamp duty bill of £400,000 and the other £600,000
“Although a lot of people might say this is a rich person’s problem, these house buyers head up companies who employ thousands of people and they’ve earned their cash by working very hard, and that’s particularly true for foreign people looking to come to the UK.
“It leads them to wonder if it’s something they want to get involved in.”
Curran says Boris should back-date the stamp duty reduction to July 1st so that agents, buyers and sellers can all “carry on with their lives rather than waiting to see what a guy with a blond mop may or may not do in October,” he says.
“I think if you look at what’s happening to gilts and sterling then you get a good flavour of whether Boris can really borrow more to fund this stamp duty break.
“The markets are saying it’s irresponsible economics from what I can see.”Charles Curran, Maskells
In London, Johnson’s stamp duty proposals are unlikely to have an immediate effect, though.
Abolishing the duty for homes bought at £500,000 and below would only affect the apartment market, while for prime buyers, Brendan Roberts says it’s still a “significant financial commitment to pay stamp duty even at the lower rate Johnson is proposing at 7%, or 10% if it’s your second home”.
“I don’t know how his mind works, but I get the impression that Johnson thinks on the hoof, firing out these clever ideas without thinking them through,” he says.
It’s a sentiment that many agents, particularly in London’s prime market, are likely to agree with.
Image source and courtesy of Chatham House.