In my last blog, we looked at the one of London’s priciest property locations. Homes in the Royal Borough of Kensington and Chelsea have an average asking price of £2million and were prime hotspots for affluent property hunters. However after the Chancellor of the Exchequer, George Osborne, announced the budget for 2012 many prospective buyers may think twice before committing to a purchase.
Mr Osborne announced that the stamp duty tax on properties priced over £2million will rise from 5% to 7%. He added, “It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more”.
Impact on the Affluent
This change will heavily impact London more than any other region in the country, which is a popular location for overseas property investors. According to Savills global estate agents 1,620 properties were sold at £2million plus and of those sales, 73% were in London. With this new tax in place, some fear it may negatively impact the property market. With average property price in London thousands of pounds above many other regions, the economy is heavily supported by these expensive homes.
You can speculate that foreign buyers may be less inclined to invest in London, which could diminish not only the UK property market but a proportion of the GDP too. On the other hand, if a buyer is able to afford a property worth over £2million, a minimum tax of £140,000 is just a small pebble in their bank account. A concern of more importance will be the need for good property insurance, considering their heavy investment.
Side Effects on the Rest of the Market
Property prices are still expected to increase in the future, so three and four bedroom family homes in areas such as Islington are expected to enter the 7% stamp duty band within the next two years. This will make things increasingly difficult for buyers who may still be struggling to secure a mortgage. The government’s NewBuy scheme is aiming to put many first time buyers on the ladder but the 5% deposit is only valid on newly built properties. So when and if these homes sell out, all that will be available are older houses which have the same expensive mortgages. This could leave many prospective buyers in the same situation they are in now, relying on rental properties until they can secure their first house.