The way we buy homes is changing ‒ and it’s slowing down the market

As buyers aim to dodge Stamp Duty, they are leapfrogging several rungs of the housing ladder ‒ and it is impacting the market.

Stamp Duty is a big source of income for the Government, even if the sums raised have fallen over the last year.

Figures from HMRC show the tax raised £11.9 bilion in 2018/19. While this is down from £12.9 billion raised the year before, it remains a massive figure.

What’s more, some people have suggested that efforts to avoid having to repeatedly fork out on Stamp Duty is causing a fundamental shift in attitude among some buyers.

Stamp Duty calculator: what you will pay on homes worth £125,000 to £2 million

Leapfrogging the ladder

While the Government was keen to stress when it revamped Stamp Duty a few years ago that only the biggest transactions would lead to larger bills, it is still a pretty steep expense to worry about.

And due to that expense, some homebuyers are deciding they cannot afford to move every few years, as they might have done beforehand. 

In a bid to avoid racking up significant Stamp Duty bills, they are “leapfrogging the property ladder”, as Shaun Church, director of mortgage broker Private Finance puts it.

In other words, some homeowners are looking to purchase homes that don’t just suit them now, but for the foreseeable future as well.

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Family moving into new home. (Image: Shutterstock)

How this is changing the housing market

This change in attitude towards buying a new home may be playing a part in the slowdown in housing transactions.

Leapfrogging a couple of rungs in the housing ladder may mean I spend less on Stamp Duty.

But it also means less movement among those properties which may be too big for first-time buyers – but not big enough for “last-time” buyers.

Opinion: time to scrap Stamp Duty for downsizers

According to data from HMRC, there were 89,810 residential property purchases in May, down 6.4% from April and a massive 11.3% lower than May 2018.

Brexit is having an impact β€’ like it or not, it’s having an impact everywhere β€’ with some would-be buyers adopting a “wait and see” approach.

But if buyers are skipping a bunch of stages in their home-owning journey, that may cause sales of certain types of homes to slow down.

Person checking mortgage information online. (Image: Shutterstock)

It’s changing the mortgage market too

This shift towards a more long-term approach to our homes is also impacting our mortgage decisions.

If you’re buying a property you think is going to be your “forever home”, there isn’t much point in going for a two-year fixed rate that you’re going to have to re-mortgage a couple of years down the line.

No, you’ll probably opt for a longer deal instead in order to lock into cheap rates on offer at the moment.

And while five-year fixes have become the default for many borrowers, there are increasing numbers of people looking for certainty over an even lengthier period.

It’s no coincidence there has been such a stark jump in longer fixed rate deals on offer.

Between May 2018 and May 2019, the number of seven-year fixed rates available jumped from 10 to 26 says independent mortgage advice provider London Money.

According to Moneyfacts, 10-year fixed rates rose from 128 to 178 over the same period.

It’s not that long ago that borrowers took out a short-term fixed rate and then switched every few years, but those days may be well and truly behind us.

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Fixing a dysfunctional market

There’s no escaping the fact there’s an awful lot wrong with the housing market at the moment, from the ongoing leasehold scandal to the fact we don’t have enough homes to meet demand.

While there’s something quite heartening about buyers taking a responsible, long-term view of home ownership, the truth is this approach cannot be right for everyone.

Not all buyers want to shift simply from starting out as first timers in a one-bedroom maisonette, before moving onto a four-bedroom townhouse in the suburbs.

Unfortunately, it’s many of these buyers that are in a pickle at the moment.

As things at the larger end get clogged up, there’s not enough movement further down the ladder for second and third steppers who are quite happy to leave the “forever home” for just a little bit longer.

The industry has called for further Stamp Duty reform, so it stops clogging up transactions, whether that’s moving it from a tax paid by buyers to sellers – or simply replacing it with something else entirely.

But so long as it keeps delivering massive sums to the Government’s bank balance, is there really any impetus to take a fresh look at it?

Overseas buyers to pay more Stamp Duty - but will it make any difference?


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