Rishi’s temporary Stamp Duty holiday aside, it might be of interest that if you were lucky enough to be buying a £5m property at the moment, you’d be paying over 10 per cent of its value – £513,750 in fact, in Stamp Duty Land Tax. What’s more, if it’s a second home, which they often are, it’s a cool £663,750. No wonder many wealthy Londoners now rent rather than buy.
The problem and reason for the headline is that even for mere mortals moving is still expensive. At £500k, still not a fortune outside the London bubble, you’ll normally be paying Stamp Duty at £15k, enough for a new kitchen and bathroom or maybe even a loft extension or side return if you’re frugal.
The issue is exacerbated by the fact that lenders won’t ‘add’ Stamp Duty to a loan, a particular issue if you’re in the higher brackets, the payment must come out of cash.
In London and the more expensive areas outside the capital, moving is now a rarity. The rumbling, literally, of basement diggers is now a regular and unpopular accompaniment to upmarket living. With each square foot of prime central London worth anything from £1000 – £2000, the cost of building a basement at c. £500 per sq ft makes total sense. If moving is going to cost hundreds of thousands you can see why the received wisdom is often to stay put.
A generation ago the average length of time in a home in London was somewhere just over three years, that’s now stretched to over 15 years, so anyone can see that the rise in SDLT has deterred moves. When these moves do take place they tend to leapfrog what would have been the logical next step twenty years ago. For example, many will go from a three bed terraced house straight to a five bed detached house missing out the four bed semi link that would have been natural in the past.
A significant issue, one that agents struggle to articulate to owners, is when someone with a three-bed house decides to save the costs of moving and create a five bed house, with basement and loft extension.
People, though they won’t admit it, desire a bigger home in a better street for prestige as much as anything, so creating a bigger house in a street where smaller houses are the norm can make it difficult to sell. Similarly making the mistake of building more living room at the expense of outside space, especially post Covid, could be a costly error.
Your mortgage valuer will use the expression ‘commensurate with others in the area’ for good reason – ask a respected local agent whether it’s worth doing and check what other houses have sold for in your street and then compare what you’ll spend. The coming months could be volatile so never attribute hope value to what you’re doing and make sure you can stay put if things get shaky, even if historically things tend to balance out.
Now we have a government that might actually agree that lowering a tax could create more take, we might see some roll back – but until then that rare occasion when you consider moving will need some careful maths and an in depth conversation with a knowledgeable local estate agent.
Ed Mead is a Property Advisor and Founder of property viewing service Viewber.