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Impact….what impact?

2nd April 2012

Estate agents as well as the media still seem perplexed by prices….are they going up or going down? The budget could help to answer that question. HMG has raised the Stamp Duty Land Tax (SDLT) from 5% to 7% on residential property purchases over £2m with immediate effect, and for residential purchases by ‘certain non-natural persons’ – companies and collective ownerships/partnerships – SDLT is now 15%. From April 2013 HMG also plans to levy ‘large annual charges’ on £2m+ properties held by companies.

Peter Young, MD of JDWood believes that it will be “business as usual” and “initial soundings from our buyers, sellers and staff indicate that, despite everything, the rules of the game have not changed.” And yet by his own admission there are contradictions. “Several things are certain: if you have property contained in a company vehicle for whatever reason (and not all such arrangements are SDLT-related), this is the time to consider selling. There is a window of opportunity which, if you don’t take it now, may not come again, and by announcing a consultation on an annual levy and Capital Gains Tax to be implemented next year the government is indicating that the magnitude of taxation may increase yet further.”

Advice to anyone trying to sell needs to be carefully calibrated. Geography and expectations are critical. The market outside London still suffers from a lack of quality stock but despite this, prime properties over the £2m level were already failing to find buyers before the budget. Estate agents have been slow to advise their clients on the action they need to take. There is still a yawning gap between what most buyers are prepared to pay and what owners think they can achieve. Over-valuing by agents in both 2011 and 2012 has exacerbated the problem and could result in future price reductions being “too little too late.” Price cuts at the top end will of course have a knock on effect on the rest of the market.

Within London, many buyers have reluctantly been prepared to stomach increased taxes and costs while prices went upwards. But the climate is changing. Any market works in cycles and prime central London has depended heavily on foreign buyers. The currency differential and London as a safe haven were both incentives to buy but options elsewhere may start to look more attractive. London by any standard is expensive and it won’t take much to spark a price correction. Perhaps the budget has lit the fuse?

Estate agents may have only a limited window (April and May) in which to convince their clients to take a modest price cut and catch a buyer this year. Those that get ahead of the game will be the winners. According to a recent survey from holiday rentals company HomeAway published in March 2012, 65% of second homeowners are considering or would like to sell their property. We have for years lived with demand outstripping supply but, even without an interest rate increase, that could all be about to change.