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Last September, Prime Minister Theresa May announced plans to raise the amount of stamp duty for overseas property buyers in an effort to curb homelessness by lowering demand and house prices as a result. Initially, the suggestion was an additional 3 percentage points, but the final recommendation is just 1 percentage point and only in England and Northern Ireland. With the amended numbers many experts aren’t completely sold on the idea that the initiative will produce the desired outcome.
Will it make a difference?
This idea is not unfounded, according to a study by King’s College London. They found that just 1% of homes being sold to overseas buyers resulted in a 2.1% increase in house prices. Critics argue that foreign buyers aren’t in direct competition with most UK homebuyers, though, as the majority purchase lavish, expensive homes well out of the price range of many first-time buyers trying to get on the property ladder. And a 1% hike won’t do much to detract these buyers much anyway.
There are other arguments against the hike such as:
- the loss of the overseas buyer could reduce the number of new construction homes being built. This plays a crucial role in keeping house prices in check by keeping supply up.
- if these overseas buyers who usually buy higher end homes do have problems with the increase, they might look for a less expensive home which will then put them into the same market as the individuals the hike is trying to help. This, of course, will have the opposite desired effect: house prices will rise and in areas with low inventory, and those without big budgets will lose out.
London could actually be hit hardest as roughly 13% of new homes in the capital were purchased by non-residents from 2014 to 2016.
Perhaps it’s too little change to make a difference
Overall, it seems there’s little faith that the stamp duty tax increase will do much in the way of deterring overseas buyers from purchasing property here, and if it does, in fact, reduce interest it could have a negative effect on the market. It’s a valiant effort though and with other schemes like Help to Buy ISAs, it’s clear the government is making a concerted effort to make home buying more affordable for UK citizens.