House sales are falling post-Brexit: could suspended stamp duty revive property sales and stop buyers from being priced out?

When former Chancellor George Osborne massively increased tax on property above £925,000 to 10 per cent, and reduced tax for property below £925,000 to five per cent in 2014 — and then added a further three per cent for investors in April this year, this may have been an earnest attempt to cause the First Class compartment at the front of the property train to slow down while speeding up the following carriages. Alas, the result was a crash in sales volumes and not just a drop in prices at the top end of the market.

The collapse in the volume of sales in London is now putting pressure on the wider retail economy as it did in 2008, and is starting to impact on growth and investment, as well as upon new housebuilding. The limited response by the Bank of England has been to loosen monetary policy. On the back of the fall in the pound following the EU referendum and a loosening in monetary policy, enquiries by foreign investors are increasing. Having compared the number of enquiries received by its London office during the months before and after the Brexit result on June 24, my firm, John Taylor, found a 1,200 per cent increase in property enquiries from prospective buyers, 80 per cent of whom had international phone numbers.

This level of foreign interest will continue as long as the pound is down against the dollar, and the currency window will itself remain until the consequences of the Brexit negotiations become clear.

To counter this there is a large increase in enquiries across John Taylor’s European offices from UK buyers, as stamp duty in France is only 5.8 per cent, compared with 15 per cent in London if you are buying a second home. The Algarve is also taking off, and Spain’s property market is recovering well. Unfortunately the influx of foreign investors does not nearly “make up a market” or replace the number of English investors now looking elsewhere or just putting off moving, it simply means that we are able to trade a little more, and that prices at the top end don’t have to fall further. That will remain so until we have tax reform.

A tax raid on the prime market in 2014 to stop a price bubble in London, dampen foreign demand and raise tax revenues, is now producing the worst of all possible worlds. Outcomes include: an overall collapse in sales across England and in all price brackets, leading to a potential wider retail recession; a collapse in tax take, and a massive increase in the proportion of foreign investors compared with local buyers in central London, as they are the only ones able to afford the tax as a result of the declining pound. We will now see a sharp reduction in property on the market as the English decline to buy until there is more political stability and tax reform.

Former Chancellor Norman Lamont suspended stamp duty in the 1991 recession to kick-start sales. Something similar could happen next year. Following such a suspension, once stamp duty is restored, it could be two-tier: one tier of tax could be for UK residents on the old stamp duty rate of five per cent, and the other tier could apply to international investors at a higher tax rate.

This, of course, is presently not allowed under EU law, but following Brexit it would be an obvious way to tackle a reduction in sales volumes and supply, while also offering a politically acceptable way of preventing foreign investors from making housing in the capital unaffordable for Londoners.