London Update
Issue 46
STOP PRESS Young London scoops the national Gold Award for Best Small Agency at the Sunday Times Estate Agent of the Year Awards!!
Feature Article: 1808 coalition calls for reform on 'tax on aspiration'
Economic and Market Roundup
Regeneration News
Young Group News
About Young Group
Feature Article: 1808 coalition calls for reform on 'tax on aspiration'
Peter Bolton King
Chief Executive, National Association of Estate Agents (NAEA)
A new coalition has been formed in a bid to drive real reform of Stamp Duty - a tax that is as outdated as it is unpopular. The “1808 coalition” is urging the Government to abolish in its current form the anachronistic Stamp Duty Land Tax, a “tax on aspiration” that discourages first-time buyers from entering the market.
The coalition has been set up to provide a focus and an outlet to the thousands of voices that have long been calling for something to be done about this unpopular tax. It aims to put the issue of modernising Stamp Duty on the political agenda in the run-up to the Pre-Budget Report.
Why the '1808' campaign? Simple - that's the year that stamp duty was first extended to property sales in Great Britain. To put it in context - 1808 was the year before Charles Darwin was born, and the year Beethoven's Fifth Symphony was premiered, which shows just how much the tax is a relic of another age, and one that fails to recognise the modern British property market.
Distorting the market
There is a pressing need to reform Stamp Duty. Fundamentally, the tax distorts the housing market. The way in which the tax is levied, the so-called 'slab' structure, leads to a sharp rise in the amount of duty payable as the price of a property moves from one band to the next. If a home moves beyond £250,000, for example, the rate of duty jumps from just 1% to 3% of the whole value of the property. As such, if you buy a property sold at £249,950 you will pay Stamp Duty of £2,499.50. Whereas if you buy a property sold at a value of £250,050 you will pay Stamp Duty of £7,501.50. That is, an extra £100 on the sale price leads to an extra £5,002 in Stamp Duty.
The slab system has led to a distorting effect on the market with figures suggesting that a significant decline has taken place in the number of properties sold at prices just above the thresholds, rather than there being a smooth distribution of house prices as there should be in a well functioning market. Arguably the current thresholds result in many properties being sold at less than their true market value, and therefore tax revenue is lost as transactions do not take place at the 'correct' price. This is an unhealthy state of affairs and benefits neither the Government nor buyers.
First Time Buyers Losing Out
The negative impact of Stamp Duty on the housing market is undeniable but the real cost is born by those who want to own their own home for the first time. Stamp Duty has a social impact, placing a disproportionately heavy burden on first time buyers. This is of particular importance in the current climate where new buyers in the market are finding it difficult to gain a foothold on the housing ladder.
First time buyers are more likely to be near their credit limit, particularly in the current lending environment. This means they are less able to extend their borrowing to cover the additional cost of stamp duty. Moreover, stamp duty is not index-linked to rise with inflation, which means that recently stamp duty has been paid by increasing numbers of first time buyers.
With Stamp Duty in its current form the Government is effectively penalising first time buyers when it should be encouraging people to take the steps toward owning a home. More people buying houses would aid social mobility and signify a welcome return to health for the property market. Stamp Duty runs counter to these aims and functions as a “tax on aspiration”.
Halting Market Recovery
Research shows that stamp duty can cause lower rates of property turnover as homeowners are more likely to improve their homes rather than move into the next boundary. Research by the CML shows that while lower property turnover is not a problem in itself, there needs to be a good and consistent level of transaction occurring to match buyers and sellers. Low turnover means that housing chains work less smoothly. Fewer transactions result in social mobility problems, fewer people owning their own homes and arguably less revenue for the Exchequer.
Creating Inequality
Perhaps most striking of all is the geographical discrepancy in how Stamp Duty affects different parts of the country. It is remarkably unequal, falling more heavily on the south of England where prices are higher.
The regional variations are highlighted by the London Mayor, Boris Johnson, in his recently-published London Housing Strategy. This shows that at current prices only 11 per cent of London buyers will benefit from the temporary threshold increase to £175,000, due to high property prices in London. This is compared with 49 per cent of all UK buyers and 72 per cent in the north of England. Government statistics show that in 2008/2009 London reported 11.5 per cent of the UK's residential property transactions, yet 29.4 per cent of Stamp Duty yield. Conversely the East Midlands has 7.3 per cent of transactions, yet only 3.6 per cent of Stamp Duty yield. These figures demonstrate the need for a regional variation in the stamp duty thresholds to end the unfair disparity that has led to the south bearing the brunt of the tax.
It is also important to mention the impact of Stamp Duty on the development of mixed use and private rented buildings. Institutional investors in private rental properties currently pay Stamp Duty on the bulk price when individual buy-to-let investors pay a lower rate on the individual unit price. This practice is seen as acting as a disincentive for investment in the private rented sector.
On the face of it the Treasury has done very well out of Stamp Duty. By not raising the threshold in line with property prices, the tax yield from residential Stamp Duty has grown ten-fold since 1996/97. Between 1997 and 2008 receipts from Stamp Duty grew from £675 million per annum to £6.68 billion. So, does the Government have any motive to change the status quo?
Frankly, yes. The current system makes it difficult for Government to project its own revenue streams due to the volatility of stamp duty returns. While in a boom house prices moving into the higher boundaries results in substantially higher revenues, it also means that in a housing slump this decreases rapidly. The Government's own figures show that stamp duty will bring in an estimated £5.5bn less than planned in 2008/9 and a projected £10.2bn less than planned in 2009/10.
In summary, Stamp Duty is a barrier to entry for many first time buyers and is also prohibitive for those looking for a step up the property ladder. It unfairly penalises those investing in buy-to-let portfolios, who have to pay Stamp Duty on the bulk price when individual buy-to-let investors pay a lower rate on the individual unit price.
This archaic tax has failed to evolve and is an unwelcome burden for anyone seeking to buy a new home. As lenders demand even greater deposits, buyers are going to struggle to stump up the huge capital outlay that Stamp Duty demands. It is unpopular with property professionals, as our own research shows: an overwhelming majority of the UK's estate agents (86 per cent) feel that the tax is unfair. A further 81 per cent believe that an announcement by the Government to reform Stamp Duty would have a very positive effect on the beleaguered property market. We must reassess Stamp Duty, which is a levy on those aspiring to own their own homes and is manifestly perceived by all those who pay it as being unfair and punitive.
What should be done?
In our view the Government should abolish this tax on aspiration, or implement one of the alternatives:
- Suspend it for the duration of the housing downturn, with a commitment to review the existing system once the market is restored
- Reform the system - moving from the distorting 'slab' system to a more progressive 'slice' system or one which, like other taxes, is index-linked to inflation
- Raise the starting threshold for this tax well above the current £175,000 limit to ensure that everything possible is done to assist first time buyers into the market.
So, what are the next steps for the “1808 coalition”? Together with coalition partners we will be meeting with key stakeholders over the coming weeks. We will be putting forward our case to coincide with the Pre-Budget Report and will host a Parliamentary event to explain the urgent need to reform Britain's most unpopular tax into a tax that is relevant to the 21st century. Britain deserves a more radical and imaginative approach; a tax that recognises the complexity of our housing market and enable first-time buyers back into the market, which will have positive repercussions for the economy as a whole.
Peter Bolton King
Chief Executive, National Association of Estate Agents
Bank of England Extends Quantitative Easing by £25billion
GDP had been expected to grow by 0.2% in Q3 2009, but the unexpected contraction of 0.4% means that Britain is the only major economy to remain in recession. Fears over the UK's economy were highlighted when the Bank of England voted to extend its programme of quantitative easing by a further £25billion, taking the total value of economic stimulus to £200billion. Neil Young, CEO of Young Group commented, “Until the economy is back on track it is highly unlikely that base rate will rise.”
Bank Raises Growth Expectations
However, this month, the Bank of England also upgraded its growth forecasts for 2010 and 2011. By early next year the Bank predicts a return to growth, picking up to 3.75% by the middle of 2011. Meanwhile, it expects inflation to spike at around 3% in early 2010. This, coupled with better than expected unemployment figures point to Britain beginning to claw its way towards economic recovery.
Spending Our Way Out of Recession
The value of goods sold on the high street was the greatest for any October since 2002 and represented an annual surge of 3.8%, fuelling hopes that pre-Christmas spending could help pull the economy out of recession. October’s like for like sales are up 2.8% on September according to figures from the British Retail Consortium.
CBI Urges 'Invest in Construction for Recovery'
Research from the CBI and UK Contractors Group (UKCG) estimates that 28% of construction workers lost their jobs in Q1 this year alone; the highest rate of any UK industry. Furthermore, the report shows that for every £1 spent on construction, GDP increases by £2.84 and argues that without Government support for building and infrastructure projects, economic recovery will be delayed.
House Prices Rise for 6th Consecutive Month
According to the Department of Communities and Local Government, (DCLG), the average UK house price rose by 1.2% in September to £199,303. The annual fall in price slowed to 4.1% in September, the lowest annual decline for 13 months. DCLG figures mirror data from Halifax and Nationwide which recently reported 1.2% and 0.4% monthly rises respectively.
House Price Rises Attributed to Shortage of Supply
Many commentators question how representative the data is given the low transaction volumes that it is based upon and also attribute the price increases to a shortage of supply rather than an increase in demand. However, the Royal Institution of Chartered Surveyors (RICS) survey indicates that sellers have begun to return to the market with a balance of 15% noting an increase in the amount of sales stock coming onto the market during the past month, up from 5% in September.
Slow Recovery for Housebuilding
Seasonally adjusted figures for Q2 (made available for the first time this month by the UK Statistics Authority) show that there were 21,580 housing starts, up 18% on Q1. This is the second consecutive rise in housing starts, but the figure remains 34% lower than in Q2 2008. However, figures from the Chartered Institute of Purchasing & Supply reported that the construction industry as a whole continues to contract. Its index fell from 46.7% in September to 46.2% in October, the twentieth consecutive month to see contraction of construction companies.
Mortgage Approvals Rise
The latest Bank of England monthly lending figure for house purchases was 56,215, up by 68% on September last year and more than double the November 2008 low. However, the stark drop in mortgage approvals as a result of the credit crunch is starkly demonstrated; all approvals (including remortgages) stood at 110,000 for the month, barely 1/3 of pre-crunch levels.
Rental Income Rises
Landlords saw small incremental rental increases for the sixth consecutive month in October, but rents remain 3.8% lower than a year ago. London and the South East lead the rental market recovery while the majority of the regions continue to suffer falls in rent.
Net Lending Falls
Net lending in September was £922million, down from a figure of £1.28billion in August as homeowners continue to pay down mortgage debt.
Buy to Let Mortgage Growth
The buy to let mortgage sector has seen a return to growth for the first time in two years. Figures from the Council of Mortgage Lenders (CML) show that the number of loans approved to investors rose from 21,600 in Q2 to 23,700 in Q3 this year, taking the total number of outstanding buy to let loans to 1,205,000, 11% of the mortgage market, with an outstanding value of £144.2billion.
Reluctant Landlord Numbers Continue to Fall
New research from ARLA (Association of Residential Letting Agents) shows that the number of estate agents helping landlords to rent out homes that they are unable to sell has fallen from a peak of 95% in Q1 this year, through 80% in Q2 to a new low of 60% at the end of Q3. This is mirrored by data from FindaProperty which shows the stock of available rental properties fell sharply in October by -10.2%, bringing rental supply back to October 2008 levels.
Boris Battles for Eurostar Station at Stratford
Mayor Boris Johnson has written to the CEO of Eurostar seeking confirmation of when the London to Paris and Brussels service will stop at London's Stratford International Olympics station. Initially, Eurostar had planned to stop at Stratford as early as 2003, but in 2006 Eurostar announced that trains would terminate at St. Pancras and has yet to confirm plans for Stratford. Boris has also backed plans to bring another 150,000 sq ft of retail space to the 1.5m sq ft Stratford City shopping centre next to the olympic park.
Convoys Wharf Steams Ahead
CGI of Convoys Wharf
Hutchinson Whampoa has announced plans for regeneration of Convoys Wharf in Deptford, SE8, at the former News International site. Plans for the 4.8m sq ft scheme include 3,500 new homes, 785,000 sq ft of employment space and new community facilities.
AEG Gambles on Consent for Olympic O2 Hotel
AEG hopes to gain planning permission for a 450 room hotel at the site of the O2 by early next year to allow it to open in time for the 2012 Olympic Games. The proposed hotel, if apporved by Greenwich Borough Council, would provide London's largest banqueting and conference centre.
Young Group Joins the BPF
The property sector is one of the greatest drivers of the UK's economy. It is six times larger than the agriculture sector, more than twice the size of the oil industry and larger than each of the banking, leisure, transport and communications sectors. The British Property Federation (BPF) is the membership body that represents the interests of all those involved in property ownership and investment. It aims to create the conditions in which the property industry can grow and thrive, for the benefit of its members and the economy as a whole, regularly lobbying and advising Government on shaping policy that impacts the property sector.
Young Group shares many areas of interest with the BPF; regeneration, development, investment, sustainability and planning, and we're delighted to announce that this month our application for membership has been accepted by the BPF. We look forward to working with them, particularly with regard to promoting a professional, accountable and thriving private rented sector. This is an area of particular focus for both Young Group and the BPF, whose commitment to the private rented sector is set out in the housing manifesto, Letting in the Future. In fact you may recall that in June this year Liz Peace, Chief Executive of the BPF, wrote a guest article for London Update that set out the case for greater institutional involvement in the private rented sector.
Young London Rises to Join the Twitterati
Since joining the ranks of Twitter users in March this year, Young London has found a strong, loyal following and now more than 300 people are following our Estate Agency's twitter feeds, receiving regular updates on available properties and property market news. Enquiry levels for Twitter users are growing steadilly as followers receive property details as soon as they're listed on our website. @younglondon has a Twitter ranking of 94/100, putting us in the top 6% of Twitter global twitter users!
Neil Young Blogging and Tweeting!
Our CEO, Neil Young, is also on Twitter. Follow @neilbyoung or go to www.twitter.com/neilbyoung to keep up to date with Neil's musings on London's regeneration, investment and property news. For more indepth analysis, opinion and market comment, visit Neil's newly launched blog at www.neilbyoung.wordpress.com.
Young Index Q4 2009
It's been an interesting 12 months as the Government battled to get the economy back on track and lenders battened down the hatches, resolutely tightening their lending criteria. As 2009 draws to a close, we'll be kicking off our latest Young Index quarterly survey of investor sentiment and asking you how you think the property, investment and lending landscape may change throughout 2010. Many of our clients and contacts will be receiving a questionnaire by email over the coming weeks.
If you would like to share your views, we'd be grateful if you could return the survey as quickly as a possible. As ever, all respondents will be entered into a draw with the chance to win £100 of John Lewis vouchers, our way of saying a small ‘thank you’ for your time.
Young London Launches West End Pied a Terre
Already proving popular with professionals who desire a central London pied a terre for use during the working week, Young London is offering these gorgeously appointed 1 bed suites in Marylebone.
With the flexibility of renting by the week, month or year, these fully furnished and equipped apartments are situated in the heart of the West End. All utilities, broadband, TV License and council tax are provided for a small set fee.
Contact Young London for more information at younglondon.co.uk or call +44 (0)20 7593 3300.
Young Group specialises in delivering Property Portfolio Management services to private and institutional investors. The Group’s activity spans the entire investment cycle from identifying opportunities and financing their acquisition, through to managing the asset (furnishing through Young Furnishing; tenanting through Young London; financing/refinancing through Young Finance), regularly reviewing the performance of the property holdings and advising on strategic direction, through to realising returns in the most tax efficient manner. Young Group supports NORWOOD and CHILDREN with LEUKAEMIA, charities doing valuable work which is particularly close to our hearts.
Visit us online at www.younggroup.co.uk, www.younglondon.co.uk, www.youngfinance.co.uk or www.youngfurnishing.co.uk to learn more.
t: +44 (0)845 356 1000 e: info@younggroup.co.uk
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