This article has been kindly contributed by Jeremy McGivern, the founder of Mercury Homesearch. Jeremy specialises in sourcing luxury homes in prime central London, especially Belgravia, Knightsbridge, Mayfair, the Royal Borough of Kensington and Chelsea, Marylebone and St James’s.
Stamp Duty Land Tax (SDLT) has been raised significantly in the last 18 months.
Consequently house price transactions have plummeted.
Indeed the additional 3% SDLT for second homes and investments which came into effect on 1st April has completely distorted the market.
In the Royal Borough of Kensington & Chelsea transactions fell 88% between March and April. Every region across the UK recorded a fall, the lowest of which was 40% in Yorkshire. Please note that these are transaction levels and not prices. Prices have also fallen in prime central London but by nowhere near as much.
Of course, lower transaction numbers mean lower tax revenues for the government, so there have been several articles in the press suggesting that SDLT will be reduced in the future. This has led to immense speculation that the announcement could be made in the next few months.
I gave a talk on the prime London property market for SGHambros Private Bank last week and was asked by several people what I thought would happen and whether they should wait until the announcement.
Quite frankly, my advice was to ignore what you read in the press. It is all speculation when it comes to the potential fall in SDLT rates. More importantly, it is actually a mistake to delay your purchase until any reduction in SDLT is announced. Here’s why:
The market is definitely weaker than it was 18 months ago and prices have come down to reflect the increases in SDLT. This is the sign of a normal, functioning market as opposed to the diabolical crash the more hysterical commentators are predicting. As prices have come down more than the increases in SDLT this makes now an opportunity – especially if you are not buying in sterling. International buyers are effectively seeing a discount of c. 15-20%.
Now the concern for those asking whether they should wait to hear about any SDLT announcement is that they will pay a high SDLT rate unnecessarily if they buy now. This seems to be a sensible decision but in reality is exactly the opposite.
Because if SDLT is reduced what do you think will happen? Exactly. Prices will rise immediately as buyer and seller confidence strengthens. Indeed prices are likely to increase by more than the reduction in tax just as they have fallen by more than the increase.
If you wait for any SDLT reduction what you are effectively saying is that you can find your ideal home or investment and buy it before the increase in prices happens. How likely do you think that is? Not very is the answer.
Does this mean that you should rush to buy a property now? Of course not. The strategy has not changed. You should focus on properties that are best in breed within your criteria at prices that represent fair value or lower. I know I repeat this strategy, but I do so because over 90% of buyers fail to execute it.
You don’t want to be one of them because of you buy poor or average properties they will underperform and be far harder to sell in weaker markets like today. Conversely, if you buy a high quality property, it will outperform in both strong and weak markets because there are actually surprisingly few good properties available.
Jeremy McGivern, the author of this article, can be contacted by telephone on +44 (0) 800 389 4280, or by email at firstname.lastname@example.org.