Our Chief Executive, Ken McEwan, comments that the new property sales tax introduced by the Scottish Government has had a devastating impact on the housing market.
Demand for second homes and buy-to-let properties is down by 50% while sales of high-end properties have also fallen by up to 40%, according to McEwan.
Particularly hard hit are sellers of more expensive properties due to a stagnation at the top end of the market on homes worth more than £1million.
The LBTT, introduced as a replacement for Stamp Duty, imposes a progressive levy on residential properties of 2% on homes worth more than £145,000 up to 12% on those which sell for more than £750,000. The tax also attacks sub sale relief where the government penalises property traders by taxing the same property twice where traders move on the property on the same day without taking Title.
Buyers of holiday homes, buy-to-let properties and other second homes are charged an additional 3% under the Additional Dwelling Supplement (ADS).
The Royal Institution of Chartered Surveyors (RICS) said last month that the property market in Scotland was ‘stagnant’ with a fall in the number of new instructions. The Scottish Property Federation (SPF) has calculated that revenues generated by the LBTT in the past year are £57million down on Scottish Government forecasts because of fewer sales.
“The Scottish Government appears to be oblivious to serious housing issues that are just round the corner,” said McEwan.
“The housing market faces a serious slowdown and the prospect of a serious market corection if measures are not taken quickly. By removing ADS and easing LBTT ministers can avoid market stagnating and ultimately increase tax receipts.”
According to McEwan, many people who might have sold their homes in the past are opting to stay put and to upgrade their existing properties because they fear the cost of moving is too high.
“Someone buying a home worth £400,000 faces a transaction tax bill of £25,300 which is seen by many as a massive disincentive to move, particularly if they haven’t yet sold their own property, he said.
“Buyers who earn £50,000-a-year will have to earn the equivalent of their annual salary just to meet the cost of the property tax. It’s clogging up the market right across the property bands.”
He added: “The greatest negative impact has been on the purchase of second homes and buy-to-let properties. We warned before the introduction of the LBTT that it would reduce demand by up to 50% and we have been proved right.
“We have also seen a 25 % drop in demand for homes worth over £500,000 and a fall of 40% in demand for £1million plus properties.”
Before its introduction, ministers estimated the LBTT would raise £1.8bn from residential sales by 2021. That has since been revised down to £962m, a drop of 46%.
McEwan said: “Tax revenues are small compared with the high risks of restricting liquidity in the buy-to-let market and the knock-on effects on other businesses that rely on a buoyant property market.
“Many landlords are taking the view that they’ve had enough. The LBTT and the 3% slab tax are part of a bigger picture which also includes significant reductions in mortgage interest relief and the removal of 10% wear and tear relief.”
He added: “With a significant reduction of available lets in the private rented sector, the Scottish Government will be forced to meet that housing shortage at considerable cost to taxpayers.
“We are now seeing the folly of Holyrood copying measures that were introduced by the Conservative Government in Westminster, in response to an entirely different set of issues.
“South of the border there’s a problem with first time buyers gaining a toehold on the property ladder due to inflated prices, particularly in the south east. The London market is distorted by the presence of rich foreign owners many of whom don’t even live in the properties they buy.
“In Scotland the market is entirely different; houses are more affordable compared with average earnings and there’s a shortage of rental property.
“In the major cities such as Edinburgh, it is difficult to secure a rental property. Students, professionals, foreign nationals and those on benefits are all competing for the same available rental lets.”