Appropriate homes will move dallying downsizers, not a stamp duty giveaway
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As we approach the March 6th Budget announcement, it is inevitable we will hear more and more about the potential measures Chancellor, Jeremy Hunt, should (or could) deliver and why they might be so important for the housing and mortgage markets.
Part of that pre-Budget inevitability is a continued focus on stamp duty, with many in our sector continuing to call for – sometimes radical – change in this area.
Over the course of the last week, I have read articles suggesting further ‘holidays’ for first-time buyers, increases to the thresholds in order to take more people out of the tax when purchasing, plus calls to scrap stamp duty altogether.
A further suggestion – and one that has been notable in recent years – comes in the form of whether stamp duty for those wishing to downsize property is still viable, and whether the Government should instead exempt downsizers in order to allow them to move to smaller properties, and free up the larger properties which are hard to come by for those seeking to move up the ladder, particularly families.
A recent report, commissioned by the Family Building Society, and sponsored by Lords’ Mandelson and Heseltine, urged policymakers to look at this option, suggesting there were considerable numbers of older homeowners who would like to downsize but are put off by the large costs involved, particularly stamp duty on the purchase.
I’ve no doubt there are some individuals in this situation, and would ideally like to move out of larger properties and are perhaps being put off by the sums of money involved, not just of course in stamp duty – which could well be seen as ‘wasted money’ – but also in terms of moving and estate agency costs and everything else that comes with downsizing.
Historically, of course, downsizing was essentially the only option available to those who felt their property had outgrown them and their needs, or were looking to extract some of the capital value they had accrued in a home.
Nowadays, as advisers will know, there are other options available including different types of later life lending such as lifetime mortgages, which allow people to stay in their homes if they do not want to move, or if they can’t get that downsize to work.
That last point is crucial because there’s a wider issue at play here for older homeowners and comes with the nature of today’s UK housing market. Back in the day, for example, there might have been a much greater supply of suitable homes for downsizers to move into, and the cost of those homes would have allowed them to extract capital value as well as afford the purchase.
Now, for many people, there are fewer options. Take, for instance, the historical mainstay of the older homeowner, the bungalow. Research at the end of last year form Quickmove Properties revealed that just 1.2% of all new-build completions are now bungalows, and that as a whole, only 7.6% of the UK’s entire housing stock are this type of property.
In other words, the number of bungalows has been shrinking, because quite frankly, why would a new-build developer with a finite amount of land build a property which takes more of that footprint when they can use less land to build two/three-story homes.
It’s a question of economics and therefore, not just bungalows, but the wider supply of properties available to those wishing to downsize has shrunk, and of course the price of property has continued to rise, making it more difficult to move, certainly to properties which fulfil the needs of the ‘average’ downsizer.
So while I believe a stamp duty cut or holiday or simply getting rid of it for downsizers might well provide the impetus for some to be able to move, I certainly don’t believe it will be a game-changer in terms of freeing up the property required for those wishing to secure bigger family homes.
In fact, without greater levels of property supply right across the board, the likelihood is that more and more people are going to be staying in their home for longer, and as a result, they’ll be looking at the ways and means by which they can do this, releasing the money they require, and also reshaping those properties to fit their needs in later life.
In my view, until there is a concerted focus on new-build provision and increasing this dramatically to fit the demand needs of all types of homeowners, we are likely to see continued, and greater use, of later life lending, and advisers certainly need to be prepared to meet this demand both now and in the future.
Stuart Wilson is Chairman of Air Club
First published in Mortgage Solutions on 14th February 2024
References:
Downsizing stamp duty report:https://todaysconveyancer.co.uk/downsizers-must-exempt-stamp-duty-report/
Bungalows: https://www.propertynotify.co.uk/news/are-bungalows-nearing-extinction/