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New property tax in Scotland raises less than expected on residential properties
Revenue from the Land and Building Transaction Tax (LBTT) in Scotland failed to reach forecasts for residential sales in the 2015/2016 financial year. The Scottish Government has hoped to raise £235 million but the published figures show it was £201 million, some £34 million below expected and 26% below the £270 million collected the year before. However this fall is likely to have been exacerbated by property market activity brought forward at the end of 2014/2015 as buyers raced to beat the new LBTT when it was introduced in April 2015. LBTT replaced stamp duty on all residential purchases in Scotland and the new rates make it more expensive to purchase property with a value above £333,000 compared to the rest of England and Wales. This is especially the case in the prime market where costs are as much as 90% higher than under the previous system. ‘While the introduction of LBTT in April 2015 resulted in a welcome reduction in purchase costs for a significant number of home buyers in Scotland, the flipside of this was a substantial increase in taxes for those at the top end of the market,’ said Oliver Knight, a senior analyst with Knight Frank Residential Research. ‘Last year, we raised concerns that levying these rates for higher value homes could reduce transaction volumes and ultimately have a negative impact on tax receipts. Policymakers may need to consider allowing some room for manoeuvre on LBTT rates if they find that they continue to impact on activity at this end of the market, and if they want to hit next year’s forecast of £295 million in revenue,’ he added. He explained that one reason for the shortfall in forecast versus actual revenue in 2015/2016 has been the effect of forestalling whereby some transactions were completed earlier than they otherwise would have been to ensure they were assessed under the old SDLT regime. The latest available data from the Registers of Scotland shows that 62% of all residential sales above £1 million in Scotland in 2015 occurred in the first three months of the year, prior to the introduction of the levy. However the amount for commercial property was higher than expected. The Scottish Government had expected to raise £146 million on non-residential property but actually raised £214.2 million, some £68.2 million more than predicted. Blair Stewart, partner in Strutt & Parker's Edinburgh office, pointed out that the LBTT residential shortfall was significant and highlights a weakness in relying on too narrow a band of high value sales. ‘While the commercial LBTT tax revenues came to the rescue this year, the forecast for the next five years is steadily more dependent on high value sales. Equally, the end of the year was distorted because significant numbers of people were buying properties before the LBTT surcharge kicked in. This will not be the case in future years,’ he said. ‘While the whole housing market is improving in terms of sales volumes the… Continue reading
Sales to first time buyers increased in UK in March
Sales to first time buyers in the UK were up in March and real estate agents expect to see further increases in sales to the group following the buy to let stamp duty changes. Some 28% of total sales in March went to people buying their first home, an increase of 4% compared to February, according to the latest housing market report from the National Association of Estate Agents (NAEA). The report also says that 39% of estate agents expect the stamp duty change which saw the introduction of 3% rate on buy to let properties and second homes to increase availability for first time buyers as interest from investors slows. More than a third of estate agents, some 36%, argue sales to first time buyers will pick up further, due to less competition for properties. Overall, the supply of houses available to buyers soared by54% in March from 35 properties available to buy per branch in February to 54 in March. On the other hand, demand decreased last month, when agents reported an average 417 house hunters registered per member branch, down from 463 in February when demand for housing was at the highest level in 12 years. In March, estate agents also reported a decrease in the number of properties selling for more than asking price. Only 7% of agents saw this happen in March compared to 11% in February. ‘The last few months first time buyers have had to compete with landlords for the same properties and those landlords have really pushed hard to complete ahead of the rise in stamp duty,’ said Mark Hayward, NAEA managing director,. ‘Now, in theory things should get easier for first time buyers as we have seen with a slight increase in sales this month and as those seeking to buy to let will tail off,’ he explained. ‘However in reality, it’s unlikely in the long term that first time buyers will notice a huge difference, as prices remain high and housing is in short supply. The Government needs to significantly increase the number of homes that are being built in this country to really make a difference to those that are struggling to get on the housing ladder,’ he added. Continue reading
UK households believe that the rate of house price growth has slowed
Households across the UK perceive that the value of their home rose in April, but it was a slight decline compared to the previous month. It indicates that households perceive the rate of house price growth has slowed marginally, according to the House Price Sentiment Index (HPSI) from Knight Frank and Markit Economics. ‘Slightly weaker house price sentiment follows a period of healthy market activity between January and March which was in part promoted by purchasers trying to complete purchases ahead of the April introduction of the extra 3% stamp duty on additional homes,’ said Gráinne Gilmore, head of UK residential research at Knight Frank. ‘Activity across the market may now become more muted, and in addition, the debate around the EU Referendum may convince some buyers to adopt a wait and see approach, although the UK’s position in the European Union will not affect one of the key fundamentals in the market, an undersupply of new homes being built and existing homes for sale when compared to demand,’ she explained. The future HPSI, which measures what households think will happen to the value of their property over the next year, also slipped back in April compared to the previous month. Gilmore pointed out that while still indicating that households across the UK expect the value of their home to rise over the next 12 months, this is the lowest reading recorded by the index so far this year. Sentiment on future house price growth was lower in nine of the eleven regions covered by the index month on month, with the biggest fall in sentiment occurring in the East of England. Tim Moore, senior economist at Markit, believes that after a strong start to the year, UK property market conditions appear slightly more subdued in April, especially in relation to households’ expectations for price growth. ‘While perceptions of current price growth are still firmer than at any time in 2015, expectations for the next 12 months moderated in April and were among the lowest recorded over the past three years,’ he said. ‘This divergence between relatively brisk current price momentum and softer expectations ahead in part reflects heightened uncertainty about the near term economic outlook. Moreover, the latest survey highlights another brake on the number of UK households intending to purchase a property over the next two years, with this index down appreciably from its peak in February 2015,’ he added. The details of the index shows that some 5% of UK households said they planned to buy a property in the next 12 months, down from 5.5% in December. On a slightly longer term basis, the proportion of households across the UK planning to buy a property within the next two years was 10.8%, the lowest proportion since the index began in April 2014. The survey suggests that demand for property from households in London will be amongst the strongest across the country within this time, with 15.6% of households there indicating their intention… Continue reading
