Even though the London property market is currently in slowdown, prices remain some of the highest in the country.
This obviously puts pressure on affordability and this pressure is increased by the cost of Stamp Duty Land Tax, which can be very expensive for residential buyers and even more so for investors who have to pay a 3% surcharge on (most) property purchases.
London – 11.3% of transactions, 39.2% of stamp duty
According to figures from independent lettings and sales agent, Benham and Reeves, during the year 2018 there were 1,106,000 sales transactions in the UK as a whole, of which 125,000 were for properties in London.
Buyers of UK properties paid a total of £9 billion in Stamp Duty of which London property buyers paid £3.6 billion. To put this into perspective, the next most generous donors to HMRC were buyers in the South East, who made 16.1% of all sales transactions (making it the region with the highest sales volume) but paid 21.5% of the total Stamp Duty bill.
By contrast, buyers in the North West paid just 4.9% of all Stamp Duty even though they made 12.3% of all sales transactions, putting them in second place for overall transaction volume.
London-weighted Stamp Duty is nothing new, but it is reaching all new highs
Back in 2008 Londoners paid “just” £1.9 billion in Stamp Duty. In 2018 they paid £3.6 billion in Stamp Duty. That’s an increase of 86.4% over 10 years.
To be fair, 2008 was the year of the great financial crisis, which hit London hard and 2012, by contrast, was the year of the London Olympics, which led to massive house-price inflation in certain parts of the city, but even so that is a massive increase by any standards.
It is also hard to see how the government can take any meaningful action to alleviate the situation without creating conflict with other parts of the UK or, frankly, if there is any political will to do so, given that Brexit has the potential to bring significant financial challenges.
The lesson for investors
London desperately needs high-quality rental accommodation, but the price of property together with the Stamp Duty surcharge and loss of tax relief on mortgage interest means that, for the time being at least, London is, at best, a challenging market for property investors.
At some point in the future, the government may be forced to address this in some way, possibly by offering some kind of special deal to landlords who offer longer tenancies, but until (and unless) this happens, many investors are likely to struggle to make the sort of returns necessary to justify their capital outlay and risk.
For the time being therefore, property investors may wish to focus on the north of England, where affordability is much better and the impact of taxation is lower.
There are still bargains to be had in Manchester and even more exciting options for those prepared to look further afield, in particular Liverpool and Newcastle are both showing massive potential.
Fletcher Day are a full service commercial law firm in London, with an experienced team of property lawyers in London who specialise in acquisitions, financing, licensing and landlord and tenant matters.