Sun. September 30, 2012 @ 10:18 pm

The impact of stamp duty holidays on market turnover

Since the house price crash of 2008/09 and the collapse of housing market turnover due to the effects of the credit crunch on mortgage lending and constrained deposit affordability; there have been two periods when stamp duty has been suspended for transactions meeting certain conditions:

  • From 3rd Sept 2008 to 31st Dec 2009, stamp duty was suspended for all residential property selling for up to £175,000. Both before and after the suspension, a 1% rate was set for all property selling for more than £125,000.
  • From 25th Mar 2010 to 24th Mar 2012, there was no stamp duty for transactions priced up to £250,000 for first time buyers.

Given that the aim of these measures was to reduce the overall purchase cost and increase accessibility and hence market turnover, what was their impact on the market?

As we can see from the chart below, the stamp duty holidays had a noticeable impact on turnover levels relative to the benchmark level (total mortgages on properties priced less than £125k) in the final month before they expired. However this was then followed by a lull in transactions as transactions were obviously brought forward.

There is less evidence of a general increase over the period of the stamp duty holiday. During the first holiday period, transactions probably remained weak due to wider market conditions until the later stages but then picked up. During the second holiday period, there is some evidence of increased turnover during the early stages but across the majority of the period there is limited evidence of an increase in transactions.

The total impact across the two holiday periods is summarised in the table below and as we can see that the net result was to increase transactions by approximately 13,000 during the first holiday and 7,000 during the second holiday.

From these results it would suggest that stamp duty holidays have only a minor impact on increasing transactions (which is no surprise given that deposit affordability is the biggest to constraint in the market) and there would appear to be little benefit in holding the tax break over a longer time frame.

Note: I have used the Council of Mortgage Lenders’ data on the distribution of property valuations for new mortgages because it allows me to split out first-time buyers. I estimate that the number of mortgages reflects ~80% of stamp duty liable transactions at lower price bands.