Few things anger the industry more than the effect of stamp duty and other costs on property transactions (well, maybe Purplebricks is more provocative - but stamp duty is right up there in terms of raising blood pressure).
This is particularly the case in prime London where there is a clear difference between transaction volumes before and after George Osborne’s late 2014 stamp duty reform - higher levels of duty appear to have led to fewer purchases.
However, even in the capital, things are not completely clear cut. It’s stating the obvious but other factors matter, too.
For example, Knight Frank says transactions in prime central London dropped nine per cent in the year to the end of August, a fall which “highlights how uncertainty surrounding the final stages of Brexit talks are having an impact on the market.” In other words, falls in transactions can happen (as we know) even when stamp duty remains unchanged.
The effects of stamp duty outside prime London can appear even less clear cut.
The late 2014 Osborne reforms significantly cut duty for most buyers across the UK, yet transactions have declined slightly since that time. One may say they would have declined more without the reduced duty - perhaps that’s true. But there is no direct and guaranteed relationship between stamp duty and transaction volumes, otherwise deals would rise.
This is also the case with the additional homes stamp duty (the three per cent surcharge) introduced in April 2016. Although mortgage data shows this led to fewer buy to let purchases, it’s not been the same for holiday homes.
Recently released HMRC figures for 2017-18 show that additional homes contributed £4 billion, or 43 per cent of the total stamp duty take. If buy to let purchases did indeed go down, that means holiday home purchases rose despite the three per cent surcharge.
So while stamp duty may generate headlines and create ‘mood music’ about a housing market, there is no conclusive proof that by itself a fall in the tax generates a rise in sales.
Allied to this there is a feeling in the industry that UK transaction costs - including stamp duty of course, but also including about a dozen other fees from Land Registry registration and conveyancing to agents’ commission - are amongst the highest in the world.
The Global Property Guide is one of the few places where comparative costs are attempted - comparisons are notoriously difficult because there are so many tax variations, making it challenging to get an ‘average’ with which to compare one country to another.
Nonetheless, in the guide’s league table of costs, the UK comes 18th out of 42. Figures include registration costs, agents’ commission, legal fees and sales and transfer taxes.
Here are a few comparisons from Europe, all drawn up using data from late 2017. It’s important to remember that these are ‘round trip’ costs, of a sale AND a purchase by the same household, and they include all costs not just duty.
Belgium: transaction costs of 16.7% to 27.6% of a property’s sale price. (Registering the property with the government can alone cost up to 12.5%);
Russia: transaction costs of 20.7% to 25.5% of a property’s sale price. (Estate agents’ fees are relatively small part of this, only 2% to 5%);
Germany: 9.02% to 16.34% (with the biggest chunk being for registering the new owner);
UK: Stamp duty makes up a bigger chunk of transactions costs in the UK than in most countries, but because stamp duty can be zero for first time buyers or on relatively low-cost the total transaction costs can be very low - if you buy a cheap enough property, just 2.9% of the purchase price. But if you buy an expensive property, especially if it is an additional home, the ‘round trip’ transaction cost can be 17.06% - making the UK one of the dearest in the international league table;
Netherlands: 6.63% to 9.86% with buys paying most of the fees, and the agents’ commission being only 1% to 2%;
Switzerland: 3.48% to 8.93% and with agents’ fees rather than a registration charge or stamp duty being the largest element;
Denmark: Propping up the bottom of the Global Property Guide league table, this is very cheap with a ‘round trip’ costing 1.23% - 3.23%, including 0.5% to 2% for the agent.
All of this ‘proves’ very little and comparisons are broad-brush and involve many exceptions. But while we would all welcome lower stamp duty in the Budget in 10 day’s time, it wouldn’t necessarily trigger a major surge in the housing market that we would all like.
After all, some 94 per cent of buyers apparently benefitted from the reform of stamp duty in December 2014 - and since then transaction levels have remained muted, at best.
* This is the latest in a series of research pieces from Estate Agent Today.