28 Jul Staggering 1-in-3 property transactions fell through over the past year – why is this happening?
Over the last 12 months 34% of property transactions fell through according to research from Smoove’s inaugural Home Movers Report. In the report 55% of homeowners said it is unlikely they would move again within the next five years due to the stressful process and unforeseen additional costs. Homeowners spent on average £1,640 on unexpected costs – including stamp duty fees. As a prospective buyer on a strapped budget, a few thousand pounds extra can be all it takes to mean a potential transaction has to fall through.
As a result of soaring UK house prices, more than 4 million homes have been pushed into a higher stamp duty bracket compared to March 2020. Of those pushed into a higher bracket, 28% have moved above the initial £125,000 stamp duty threshold according to data from Zoopla. Stamp duty is an important factor to consider but can often be overlooked when buying property, it is something that must be meticulously calculated. A study from stamp duty experts Cornerstone Tax shows that 13% of Brits say that as a homeowner, they feel that they were forced to pay too much stamp duty in error and 61% of homebuyers said that they never considered if there was a mistake in the stamp duty they paid.
Each year, property experts Cornerstone Tax estimates that £2 billion of SDLT is overpaid to HMRC due to the complicated and often confusing nature of the tax. In the last year, over £15 million has been reclaimed from the firm on behalf of its clients, the majority of which are individuals incorrectly paying thousands of pounds of unnecessary tax. There are now 49 different stamp duty reliefs, many of which are not well known, making it difficult for property professionals to calculate the correct rate of SDLT for each transaction. An error can cost clients thousands of pounds and can lead to solicitors and conveyancers facing significant negligence headaches, including ever-rising premiums.
The UK property market has been buoyant since last year – with house price growth showing an extraordinary 11.8% annual rise in 2021. This rise can be attributed, predominantly, to the stamp duty holiday. This was a tax break introduced in the UK during the peak of the coronavirus pandemic in July 2020, which scrapped the transfer tax on the first £500,000 of a home sale with savings of up to £15,000 available to buyers.
The holiday was gradually phased out and it reverted to the typical stamp duty system at the end of September 2021. However, demand for property within the UK has not faltered, with the average asking price of a house hitting a new high of £294,845, which represents a 6.8% rise, or £18,849 since the start of the year. This means that house prices have risen every month over the last year. Alongside this, 53% of properties are selling at or over their final advertised asking price and 98.9% are achieving their final advertised asking price according to Rightmove. Mis-calculated stamp duty is becoming a major factor that causes transactions to fall through. Therefore, for homebuyers, the importance of calculating the correct stamp duty for a property has never been more pivotal.
David Hannah, Group Chairman at Cornerstone Tax, discusses:
“It’s staggering to see that just over 1-in-3 property transactions are falling through, meaning a significant portion of the population are missing out on the purchase of their desired home. Particularly for prospective buyers on tight budgets, it’s really important to have a comprehensive overview of all the costs involved so that you’re met with no surprises down the line. One such surprise, which I believe is contributing to this trend, is buyers being presented with higher stamp duty costs than expected, subsequently forcing them out of a purchase.
“Stamp duty is no simple thing and requires years of expertise and education to understand its complexities – and perhaps this is why it is so often miscalculated. We made SDLT Compass as a solution to this problem, and considering how busy and overworked conveyancers are at the moment, there is no better time to employ a technological solution.
“In late 2021 HMRC published a consultation document on proposed changes to the mixed-use property rules and multiple dwellings relief. That means if you buy a property, currently, which has any element of non-residential or is not suitable for use as a dwelling then you don’t pay the higher residential rates of SDLT. HMRC are ‘consulting’ about how they can change that to remove the advantage that these properties have.
“One of the things they’re proposing is that we’re going to be required to split out the non-residential elements of the property and only pay the non-residential rates on that part. In their consultation document they give an example of a house at three and a half million where the tax nearly doubles from £161,000 to £320,000. But the good news is that even if they do implement those changes, if you’re buying a property at a million or less, this won’t affect you at all so there’s no need to worry about it.
“Where it’s really going to bite down is on large country estates and expensive London properties where certain features – which currently make them mixed-use – will no longer be available. As a result, the tax savings aren’t going to be around. For most of us this will probably mean that over the course of the rest of this year, possibly even early 2023, we’re going to see the law changed, but it can only be changed going forward. This means many of the advantages which they talk about in this document are going to be available on past historic purchases if you can conduct a review of your transaction and will be available until the law changes.”
