Steep stamp duty costs are encouraging homeowners to improve rather than move, potentially reducing the number of smaller homes available to first-time buyers, a House of Lords report warns.
According to the report into intergenerational unfairness, stamp duty incentivises the “upsizing” of existing homes, whereby people stay put and extend their current properties, so they don’t have to move and pay stamp duty. This could mean there end up being fewer homes that are suitable for first-time buyers.
The report claims that the foundation of the relationship between older and younger generations risks being undermined unless the issue of intergenerational unfairness is tackled, with many young people struggling to find well-paid secure jobs and affordable housing, while those who are older don’t receive the support they need.
Stamp duty also prevents downsizing
Stamp duty not only prevents people moving up the property ladder, but it is also a major obstacle for people looking to downsize.
In the report, Lord Willetts describes stamp duty as a “classic bad tax” which stops older people from trading down into smaller housing.
“Stamp duty has seriously distorted the housing market,” the report says. “The Government should review the effect of stamp duty on the liquidity of the housing market and consider how stamp duty could be reformed to improve the housing choices and availability for young families.”
First-time buyer help doesn’t go far enough
Under changes introduced in the 2017 Budget, first-time buyers don’t have to pay stamp duty on the first £300,000 of the property value when buying a home costing up to £500,000.
Whilst this has helped reduce buying costs for those struggling to get onto the property ladder, many experts argue that it doesn’t go far enough. The report suggests that stamp duty should be reduced across the board to help encourage people to move.
Professor Sir John Hills told the House of Lords that stamp duty means that property transactions are “gummed up by people who feel that it is too expensive to move and [decide] it is better to leave property empty or to not downsize”.
House of Lords calls for stamp duty review