SDLT effect on housing market

By analysing monthly data from the House Price Statistics for Small Areas (HPSSA), insight had been provided into property sales, both prior and after the stamp duty (SDLT) change.

The statistics are based on major towns and cities, due to the monthly nature of the HPSSA data being insufficient to provide significant figures for the smaller locations.

The nature of the price paid data is also unlikely to change, even where more transactions are registered at a later date. HPSSA data from Land Registry was in recent months suffering from registration lag, where transactions only appeared to be registered at a time later than when the transaction took place. Due to the large number of transactions that have now been registered, this is the first time an accurate representation of property sales can actually be viewed.

Number of residential property sales

Although the number of sales was generally higher than the historical average, the trend in the number of property sales between May 2015 and February 2016 was largely in line with 5-year average trend. March of this year saw a significant rise in property sales which did however depart from March’s 5-year average. This was a rise of 71% from February, contrasting to the 5-year average of the much lower 17% rise over the same period.

April 2016 however, saw the lowest level of sales in the last 12 months as well as the 5-year average. This particular month saw the number of property sales fall to almost 20% lower (10,936) than April’s 5-year average.

Buy-to-let market

In March 2016, the Council of Mortgage Lenders (CML) mortgage completion data reflected a similar rise and fall of the HPSSA figures of property sales. This may therefore represent the overall inclination of the market’s direction, despite the number of buy-to-let properties without a mortgage not being included.

The peak in mortgage completions observed in March of this year was generally fuelled by the 181% increase in the number of buy-to-let mortgages; a figure which grew from 10,400 in February to 29,200 in March. The growth meant that for the first time since the CML had begun publishing data in 2013, the number of first time buyer mortgage completions had been exceeded by the number of buy-to-let. For those moving house, the figure increased from 25,900 in February to 41,500 in March; a growth of 60%. This may be due to a ripple effect of the buy-to-let growth.

Although the number of first-time-buyer completions did see a rise in March, this may simply be representative of the seasonal mortgage trend as it was not by much more than the growth in recent years. For April of this year, a decline was observed for both first-time-buyers and buy-to-let before a slow recovery in May. The revival for buy-to-let was however, more minimal in comparison to that of other types of mortgage. This may represent a suppression in the longer term.

Proportionally speaking prior to 2016, the number of mortgage completions was at a fairly stable level. The first two months of the year however, saw the fraction of buy-to-let mortgages raise to a slightly higher level than in previous months, followed by a record increase in March, where the proportion grew to 30% of all mortgages from February’s figure of 18%.

The level of buy-to-let mortgages proportionally, were beneath historic levels in the 3 months prior to March 2016. This could potentially be in reaction to the surge in sales or representative of the new normal level, a result of the increased stamp duty. The home mover level seems to be returning to its usual position, whilst the buy-to-let proportion of completions remained low since March.

Between February and March of 2016, the proportion of buy-to-let mortgages saw an increase, the level of first-time buyers fell from 37% to 28%. The level of first-time buyer mortgages represented almost half of all completions (49%) in April, whereas the number of buy-to-let had fallen to 8%; a historically low level.

Historic stamp duty impact

Stamp duty changes have had an impact on housing market activity in the past. Ending in April 2012, the stamp duty land tax relief for first time buyers applied to those purchasing property for £250,000 or less. The impact the change had was visible for both the CML and HPSSA data. The final month of the two-year duty saw a peak for both property sales and first-time buyer mortgages.

For March of 2012, mortgage-lending saw its largest peak for first-time buyers. For this year, buy-to-let mortgages saw its highest point in March, indicative of the stamp duty change target market. For both duty changes, home-mover completions also peaked but on a more subdued level. This may be simply due to 2012’s higher number of first time buyers or 2016’s buy-to-let who purchased property from home-movers.

Existing property sales almost double 5-year average

The HPSSA data represents sales of properties both existing and newly-built. Newly-built property transactions usually take more time to register than existing ones, so a lag may occur for new-built property records. The impact of this may be greater for older data, thus the sales of such properties are more likely to be at a later stage of completion than those regarding existing properties.

The number of existing property sales was between 20% to 30% higher than the 5-year monthly average over the last 12 months. From 52,779 existing property sales in February of 2016, March saw a growth to 102,034. This figure was almost double the 5-year average, but beneath the April 5-year average.

For a large portion of 2015, the number of newly-built property sales was above the 5-year average. Following December however, sales of new properties fell to below that of the 5-year monthly average from February 2016.

The data indicates that housing market activity did not largely include newly built properties. This may be due to the stamp duty change on 12 November 2015 to be implemented on 1 April 2016. For builders therefore, it is likely to have been difficult to accommodate the sudden rise in demand for buy-to-let properties fast enough, with an increase in supply of housing needed. It may also be due to those purchasing a buy-to-let mortgage being less likely to be buying a newly-built property. As newly-built property is on average, more expensive than equivalent existing property, potential landlords are likely to purchase existing property in order to maximise their investment yield.

Registration lag may also be a cause for the minimal newly-built property data of the more recent months. When the data for April 2016 does become available therefore, the activity within the market for new-built properties may develop greater prominence.

2012 also saw a high number of newly built property sales in March, prior to the end of stamp duty relief for first time buyers in April of that year. In April, the newly built sales figures fell below 2014’s level by 9.4%. These statistics suggest that first-time buyers as well as developers, took advantage of the scheme’s final month, thus causing the new property market to see a temporary surge in activity. Due to the scheme’s length and its end date being widely known, developers had a substantial length of time to increase the housing supply.

Flat sales for March 2016 over double 5-year average

March of this year saw a rise in sales for all property types, but those for terraced properties and flats saw the largest increase. The number of flat sales overtook the number of sales of both detached and semi-detached properties in March.

The data indicates a notably higher property sale figure than the overall average level for April. For flat sales however, the largest decrease was suffered in April, despite the largest increase occurring in March.

Major towns and cities – impact of stamp duty For the private rented sector, as a larger share of stock is usually within urban as opposed to rural areas, the stamp duty impact upon England and Wales’ towns and cities remains relevant.

For this year, major towns and cities saw a rise of property sales in March, followed by a fall in April. Given the widespread coverage the stamp duty change received, it is perhaps not surprising that this trend was witnessed. Across the country, prospective landlords had to decide whether to purchase a buy-to-let property prior to March ending, or delay the purchase and paying a 3% of the purchase price additional stamp duty charge.

The HPSSA figures suggest the market’s response differing to the changes, depending on various house prices within the numerous locations. The data indicates that towns and cities with the highest property prices are more likely to have a property sale number lower than February and April’s average and higher than that of March. For places where the property price was lowest however, the number of sales came close to April’s historic low. Despite a geographical trend not definitively being indicated, the findings do suggest that for more expensive towns and cities, a greater fall in housing market activity may occur. This may simply be due to the increased impact of risen stamp duty charges on more expensive properties.

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