Britain’s richest people went on a property buying frenzy in the first few months of the year because they wanted to avoid a new form of fees that they’d be obligated to pay as of April.
Now, it’s been pretty well established by estate agents across the country that this is likely to lead to a dampening in buying activity in the second quarter this year because there was such a spike in sales in the first three months of 2016.
But what Tom Bill, Head of London Residential Research at luxury estate agent Knight Frank has identified in a new report on Monday, is that the drop is sales is already distorting the prime property market in Britain’s capital and buyers are behaving differently (emphasis ours):
The longer-term result of higher rates of stamp duty, including the reform of December 2014 that increased the rate for properties worth more than £1.1 million, is that buyers have become more price-sensitive.
Indeed, higher transaction costs are producing similar distortions in the prime London property market as they do with other assets including stocks and bonds.
Average holding periods increase, trading volumes decline, prices adjust to some degree and there is a stronger demand for ‘best-in-class’ assets that can be traded more easily.
In this new environment, vendors are typically lowering asking prices by 10% or more and buyers have become more hesitant. While the number of viewings in the first three months of the year increased by 25%, the number of new prospective buyers declined 10%, indicating buyers are taking longer before making an offer.
Essentially, less people are buying, vendors are dropping prices and out of those who are actually making an offer — they’re being a lot more hesitant with parting with the cash.
This is mainly because of stamp duty.
Stamp duty is a tax placed on buyers when they purchase a property in the UK. It is payable on completion of the property and under the new system, introduced in April, works out at an extra £93,750 if you’re buying a property at £1.5 million, according to the government’s stamp duty tax calculator. However, if you’re buying a property for £5 million, you’ll be forking out £513,750 just in stamp duty fees.
If you own more than one property, a 3% stamp duty is applied. This new fee came into force in April and is applicable to buy-to-let investors and those who are buying a second home. This 3% fee is on top of the extra cost of a new purchase in April.
But Bill and his team at Knight Frank pointed out that properties in the lower price brackets (up to £1 million) are seeing healthy sales growth because people are looking towards cheaper properties for their investments.