Would mansion tax cause a dip in activity?

Following last week’s stamp duty changes and the vast amount of debate regarding the proposed ‘mansion tax’, B&C decided to gain insight on the subjects from industry lenders.

The proposed mansion tax will be a one per cent annual levy on residential property that is valued at more than £2 million, in a bid to help raise around £1.2 billion. However, with property prices rising, those sitting below the £2 million threshold could move towards the red zone sooner than they think.

The Labour party has noted that those who are asset-rich and cash-poor will be protected and will have the right to defer mansion tax until the property is sold.

However, with recent changes to the Stamp Duty Land Tax, it has been argued that it could be a further challenge to high-end developers.

Noel Meredith, Executive Director of United Trust Bank, questioned whether the changes would be the end of the mansion tax or the first of a double hit on wealthy homeowners.

“The majority of homebuyers will welcome this news as the new Stamp Duty Land Tax (SDLT) structure will lower the cost of house purchase for most people. However, developers will have mixed views,” Noel said, adding that developers and wealthier buyers will be hit the hardest with the change.

“Someone buying a new home at £3.5 million will pay an extra £88,750 in SDLT under the new regime and this will be a further burden to some developers already challenged by non-committal buyers uncertain about the possible imposition of a Mansion Tax,” he said.

“I expect agents and developers to be busy handling price renegotiations from those buyers unwilling or unable to find these extra sums. In the worst cases, sellers will lose sales or they will have to agree a lower price, effectively footing the extra SDLT bill on their buyers’ behalf.”

“Developers welcome changes that stimulate demand or make purchasing easier. However developers also pay SDLT when they acquire sites and even sites for relatively modest numbers of new houses can cost millions of pounds. For more expensive sites this will create higher costs for many developers which will have to be paid for in the form of higher house prices or land owners will have to accept less for their development land. I expect negotiations for land to become more complex and time consuming and in the short term supply may be constrained which will do nothing for the delivery of new homes! In the longer term, the market will have to adjust.”

“The changes to SDLT will undoubtedly add more fuel to the debate about the taxation of higher value properties. Initially this might have been interpreted as the Government’s answer to a Mansion Tax, but it could actually be the first of a double hit on wealthier home owners. The Labour party has supported these changes to SDLT but appear to still want an annual ‘Mansion Tax’ on top. So whilst these changes are good news for most home buyers, they could make an already softening market even more challenging for high end developers.”

Mark Harris, Chief Executive of SPF Private Clients, said: “While the changes will hit wealthier buyers in the pocket, they have to be fairer than a mansion tax as it's only a hit that is taken once.”

At the AOBP AGM last month, Andrew Bloom of Masthaven Bridging Finance said that the super prime London property market will majorly suffer, regardless of mansion tax. “I think that market’s going to suffer very significantly, even if the mansion tax doesn’t come out.”

“It’s certainly not an area which we are looking to lend into,” he said.

Since that debate, other industry figures have come forward with their own opinions on the changes.

Bob Sturges of Omni Capital told B&C that the announcements from the Treasury are as much about political posturing with the general election not too far away, adding that there are some clear, unfair loopholes and some of the proposed remedies seem to be ill thought-through.

“The so-called mansion tax will hit thousands of far-from-wealthy households, particularly in London and the South East. But its impact on the genuinely super-rich, often non-doms, will be minimal; as will changes to stamp duty and capital gains tax,” Bob said.

“But together with an uncertain domestic economic outlook, the prospect of higher interest rates, a chronically weak eurozone, the full effect of the MMR still to be felt, and a general diminishing of confidence in the housing market, it is difficult to envisage anything other than drop in mortgage lending. But we think the impact will be more subtle in the short-term market where a continuing shortage of mainstream funding will benefit the more fleet-footed specialists,” he added.

Harry Cloke of Imperial Blue Finance said: “It will be interesting to see how much buyers and sellers are each willing to absorb of the roughly five per cent increment for houses worth £2-5 million,” adding that last week's stamp duty changes are a “welcome and long overdue upgrade, but they are also a political play to dismiss the Opposition's calls for a mansion tax by effectively rolling it into one upfront payment.”

Paul Wertheim of Mint Bridging, however, disagreed that lenders have consciously experienced a drop in lending, stating that it is “busier than ever”.