Squeeze on affordability promotes alternative approaches to house buying

Changes to the calculation of stamp duty and constraints on the market means a change to the traditional housing model – private client partner Francesca Angelucci explains it all

The Autumn Statement 2014 introduced radical changes to the calculation of stamp duty in relation to residential property.

Whilst the changes are generally viewed as positive for first time and second time buyers, there are fears that the changes will cause house prices in the wider market to increase and that those price increases will outweigh the reduction in stamp duty introduced by the new tiered approach.

Constraints on the housing market

There remain large constraints on the housing market which are likely to continue to affect a high number of purchasers, especially first and second time buyers. The unavailability of mortgages and expected interest rate rises are expected to continue as obstacles to those seeking to get on to and move up the property ladder.

Alternative approaches to house-buying

The continued squeeze on affordability has prompted alternative approaches to house buying. Many parents are now assisting their children by gifting them deposits or joining in purchases with them. Parents are also becoming lenders to their children by granting loans which are secured by first or second charges against the property. Parents are also becoming landlords by buying properties for their children to rent back from them so as to preserve family wealth. Some parents are even transferring the family home to their children as part of their overall tax planning strategies, as reports have suggested, Richard Branson did when he sold his Kidlington home near Oxford to his grown up children in 2013 for £1.35m, well below market value.

Experts remain of the view that the housing market is suppressed and that there is likely to be significant growth in the private rental sector. A large number of more experienced purchasers are taking advantage of this with their more secure financial standing by buying property regionally, and also in London, for investment purposes and as a means of diversifying their portfolios. London is proving to be of particular interest to investors due to the shortage in housing stock and levels of rent that can be demanded in the capital.

The impact of stamp duty

The new stamp duty regime has however created new challenges for the higher end of the property market. As the new rules allow for significant increases in stamp duty to be paid on higher value purchases, it is now difficult to argue in favour the implementation of any form of mansion tax. During the Autumn Statement, George Osborne certainly alluded that the higher rates of stamp duty charged on higher value properties would serve as his alternative to Labour’s vision of a Mansion Tax. Figures also suggest that properties in London alone purchased at a price above £1m will generate 38% of the stamp duty land tax reserve.

It is hoped that the new regime will benefit the wider market and its true impact will ultimately be seen in time. For now, whilst the housing market strives to achieve a balance between competing interests and abilities, we will doubtlessly continue to see the rise of the private investor and the collaborative family approach as a means to moving on to and up the property ladder.

For further information contact Francesca Angelucci on 0843 224 7949