How will the recent change to Stamp Duty affect the Kidlington housing market?
Well, with what is widely perceived to be good news regarding stamp duty reform last week, I thought I’d blog about the impact expected on the local housing market.
Before I go into specific aspects of the benefits and drawbacks to Kidlington, I would like to spend a couple of minutes explaining the new tax regime.
The tax used to go up incrementally with the value of the property being purchased i.e. £1-125,000 = No Stamp Duty, £125,001 – £250,000 = 1% on the whole amount, £250,001 – £500,000 = 3% of the whole amount, £500,001 – £1M = 4%, £1m & £2M = 5% and finally over £2M was 7%
The new system follows the income tax model with the increase effective only on the amount above each threshold. The new thresholds are as follows: 0% up to £125,000, 2% on the amount above £125,000, then 5% from £250,000 onwards.
The primary issue with the old system was the cliff edge increases; most potently at £250,000. Under the old system if you bought a house at £250,000 you would pay 1% so £2,500 to the treasury. However if during negotiation a price of £252,500 was agreed it would push it over that cliff edge and the buyer would pay 3% so £7,575 to the treasury. Now that same buyer buying at £252,500 would pay 2% on the amount from £125,000 to £250,000 and 5% on the extra £2,500 therefore only paying £2,625 to the treasury. Much fairer.
The old system had the impact of blocking house price growth as buyers would limit themselves to a certain spend of £250,000. I remember clearly selling three bedroom semis in the Garden City area in 2012 with buyers being adamant that they were not worth more than £250,000. However, in the spring of this year the glass ceiling cracked and they are now worth considerably more.
The impact of the change in Kidlington will most significantly affect the 2 bedroom market. In September I valued two properties for one of our multi-house landlords. One was a two bedroom mid-terrace in Wilsdon Way with modern radiator central heating and new double glazing. The other, in Flatford Place, was a two bedroom mid-terrace with warm air central heating and original windows. I valued both at £250,000 despite the Wilsdon Way property being the superior house. This was because I knew I could sell Flatford at £250,000 however, due to the stamp duty, I didn’t feel that we would be able to achieve over £250,000 for Wilsdon.
I had the pleasure of calling the landlord this week and confirming that Wilsdon would now be marketed for £262,500.
Another quick example of how the change has helped local people is our agreement of a sale this week in East Kidlington. The property was on for £290,000 and we had an offer from a first time buyer for £280,000 unfortunately the buyer could not afford to go up as he would be paying an additional £8,400 in stamp duty that he could not mortgage against. Since the reform the buyer’s stamp liability would now only be £4,000 at £280,000. Allowing extra funds for an increased offer which clinched the sale.
Although the treasury will see an average reduction in stamp duty receipts per transaction the expectation is that this will be offset by an increase in transactions. Great news for would be sellers in 2015.
I hope this has been useful and informative and if you have any questions about how the changes will affect you and your property, please don’t hesitate to get in touch.