The stamp duty increases introduced in late 2014 are still having an impact on prime areas of London and have heralded in a new era of lower transaction volumes, according to a buying agency.
Research from Middleton Advisors shows that In the five years leading up to the 2008 financial crisis transaction volumes in prime central London were running at 4,000 a year.
It says these levels were typical and stretched back to the late 1990s; during the financial crisis they dropped and over recent years have been 42 per cent below the pre-downturn peak. That volumes have not significantly rebounded is put down by the agency to successive changes to stamp duty.
“Since 1995, there have been 14 changes to stamp duty rates. Not all of these changes have increased the tax burden for the prime end of market but the majority have. Eight of the 14 adjustments have included increases to the top stamp duty rates” says the firm.
It claims that back in 1995 the average property price was £249,000 and the effective stamp duty rate at that time was 1.0 per cent, equating to a stamp duty bill of £2,500.
By 2015, the average price had climbed to £1.9m with a corresponding stamp duty rate of 7.3 per cent - a stamp duty bill of £136,000. “The seven-fold increase in prime central London prices is dwarfed by the 55-fold increase in the tax bil” says Middleton.
In the top tier of the market, the increased tax burden has been more onerous.
“For a £5m house, the 2014 stamp duty changes increased the tax payable by a further 47 per cent. The stamp duty bill for a transaction of this size is now over £500,000 – close to the price of an average [Greater] London house. Affordability is a consideration for buyers at the top end of the market too, and a stamp duty bill of this size would be a bitter one to swallow” the firm insists.
But the agency does admit that over the same time home owners and investors have had what it calls “stellar capital growth” to help them offset the burden of stamp duty - since the beginning of 1995 the average prime London property has increased by over 600 per cent.