The 'stifling' effect of the stamp duty tax has put a halt to 146,000 additional property transactions, reports Santander.

What’s the latest?

Stamp duty is causing the UK housing market to stagnate, limiting both transactions and the number of new homes being built.

An additional 146,000 property sales would have taken place over a five-year period to June 2017 if there was no stamp duty, according to a report commissioned by Santander.

It argues that more new homes would also have been built if the tax did not have to be paid, as sellers bear some of the stamp duty burden through having to lower prices.

The report says this reduces the incentive for house builders to develop land where the profits are marginal.

It pointed out that the number of new homes being built each year had almost halved, dropping from around 327,000 properties a year in the 1970s to just 164,000 a year in the 10 years up to 2016.

Why is this happening?

Despite reforms, the stamp duty burden has risen significantly in recent years as house prices have increased.

For example, someone buying a £350,000 home would have to hand over £7,500 in the tax.

This tax burden acts as a disincentive for people to move, with many considering extending their existing property instead of trading up the ladder.

It also limits the amount people can pay for their next home, as they have to factor stamp duty into their calculations.

See here for more information on the 3% Stamp Duty Land Tax surcharge, or head to Zoopla's Q & A on the taxWho does it affect?

The report argues that one of the unintended consequences of stamp duty is that it discourages people from moving.

As a result, older people tend to remain in larger homes longer than they intended, because having to pay the tax discourages them from trading down the property ladder.

Meanwhile, there are fewer family-sized homes on the market, making it difficult for people to trade up.

Miguel Sard, managing director of mortgages, Santander UK, said: “First-time buyers struggle to get on the ladder, young families want to move up it and the elderly want to downsize, but all are stifled by stamp duty.”

The group also warned that stamp duty was reducing labour market flexibility, as people were not able to move home easily and inexpensively.

Sounds interesting. What’s the background?

The report, which was carried out by the Centre for Economics and Business Research, warned the housing market must adapt to demographic change.

In the 20 years to the end of 2015, the UK population grew by 12%, while the number of households increased by 14%, with one or two person households rising at the fastest rate.

But it said stamp duty was preventing the UK from making the most efficient use of its existing housing stock.

Property wealth was also heavily skewed towards older people, the report added.

Those aged over 55 own 63% of UK residential property, with an average wealth of £161,000, while those in the 25 to 34 age bracket have an average wealth of just £3,000.

Top 3 takeaways

  • Stamp duty is causing the UK housing market to stagnate
  • An additional 146,000 property sales would have taken place over a five-year period if the tax did not exist
  • More new homes would also have been built, as sellers bear some of the stamp duty burden through having to lower prices

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