Issues facing downsizers: why Stamp Duty changes are not the whole answer
Posted on 01 May 2018
Insurers Legal & General have called on the government to remove Stamp Duty for what they call ‘last time buyers’, claiming that this move would free up the UK housing market by removing the ‘blockage’ of older home owners at the top of the market.
I have a number of difficulties with this suggestion.
I do not believe that it is the cost of Stamp Duty which is stopping people downsizing, certainly here in Belfast. The general pattern is that downsizers are selling large family homes, on which the mortgage has been paid in full, to buy a smaller property, although I accept that as people get on the housing ladder later in life, property prices are higher and length of mortgages is longer.
Owners downsize is not just because the family home has become too large for the occupants as the children grow up and move out, but often to free up equity to enjoy in retirement. I doubt that the relatively small amount of Stamp Duty that must be paid is much of a consideration when making this big decision.
Much more relevant, in my experience of the market in Northern Ireland at least, is a lack of suitable accommodation for downsizers to buy. ONS data suggests that 49% of people who would like to downsize but can’t, cite lack of suitable homes as the main reason. Just 10% of home owners said Stamp Duty was preventing them from doing so.
I also have an issue with the definition of the ‘last time buyer’ who would benefit from this suggested reduction in Stamp Duty.
Legal & General have not clarified exactly what they mean by this, but it cannot be people who say they are buying their last ever property. This could not possibly be accurately proven: buyers would inevitably claim that a purchase would be their last, either genuinely or in an attempt to delay the payment of Stamp Duty. This would lead to a fall in revenue and would raise the real possibility of people being stuck in properties no longer suitable for their needs, since another move would incur that delayed payment.
It is more likely that the definition of a ‘last time buyer’ would be made on the type of property they are buying, but even this would have its difficulties. Would that categorisation be made on size? On type of property? The concept of ‘downsizing’ is difficult to quantify, because each case is different.
The lack of suitable accommodation for downsizers to buy is not easily solved either. Bungalows are ideal, and we have always found here in Northern Ireland that they are in great demand when they come onto the market for sale, but they are not attractive for developers to build as they are a very inefficient use of development land.
It is clear that older property owners remaining in large family homes due to a lack of a viable alternative is an issue for the housing market as it creates a shortage of these types of property for growing families to buy. It’s a complex issue and warrants further thought, but I think that the suggestion made here by Legal & General is not the solution.
If you'd like to discuss the issues around downsizing or the Northern Ireland property market trends in general, please feel free to call me, Steve McGuinness, on 028 9068 3020.