29 February 2024 – Members of the Conservative One Nation Caucus urge Chancellor Jeremy Hunt to make it more affordable for older homeowners to downsize to smaller properties. To achieve this, these Tory MPs believe that stamp duty for downsizers should be abolished.
A recent study by Pegasus revealed that stamp duty is one of the biggest barriers to downsizing — second only to the hassle of moving.
And so, many experts consider stamp duty exemption the most viable option to increase housing stock.
Stamp duty for downsizers to reflect house price inflation
Reforms to stamp duty payment are undoubtedly welcome. But how would the government go about this?
David Hannah, chairman of Cornerstone Tax, recommends reassessing the SDLT thresholds. With the current Stamp Duty rates, properties below £250,000 are exempt from the tax. A 5% levy is charged for homes worth £250,000 and £925,000.
For reference, the average new seller asking price is £362,839 for February 2024 based on Rightmove’s latest House Price Index.
Although Hannah has this measure in mind for those on the lower end of the market, it can significantly alleviate costs for last-time buyers. With the current price hikes and inflation, many downsizer properties previously exempted from stamp duty have passed the SDLT threshold.
Damian Green, chairman of the One Nation Caucus, also recommends a tax for foreign investors who purchase luxury flats to make up for abolishing stamp duty for downsizers.
MPs suggest target incentives and pension allotment for deposits
The group of MPs behind the motion also recommended a better use of next week’s Budget for first-time buyers. These buyers should be able to allocate 25% of their tax-free pension savings for their deposits.
With the tax burden at its highest in over 70 years, it’s getting more challenging to enter the property market.
The group also re-established their recommendation back in 2023’s Autumn Statement. In a bid to address supply issues, local authorities will be remunerated when meeting house-building targets.
Should they achieve 100% of the target within four years, they will be awarded 15% of the stamp duty collected from the sales. One Nation Caucus also urged an added 10% increase if local authorities exceed 125% of the target.
With the help of generous incentives, the group hopes this will speed up home development.
Shortage of senior housing is still top concern
Unfortunately, the UK housing crisis can not be solved by thoughtlessly adding supply. Many experts strongly urge the government to use the country’s existing housing stock efficiently. With SDLT exemption, senior homeowners can vacate larger, underutilised homes and move into more suitable housing.
Stamp duty for downsizers is only one piece of the housing crisis puzzle.
Nick Sanderson, the CEO of Audley Group, lauds the notion of stamp duty exemption to promote market movement. But he also highlights the lack of senior housing options that scare off potential downsizers.
26% of respondents from a survey commissioned by Pegasus, a later-living provider, cited that a shortage of age-specific housing deters them from downsizing.
A March 2023 data from the House Buyer Bureau emphasizes the severity of the problem. Out of the 672,375 total properties listed, only 3.7% were retirement homes. There is no sign of demand slowing down. Within the next decade, those aged 65 and over will comprise 22% of England’s total population.
There is one sure way to ensure the success of the relief from stamp duty for downsizers. And that is if the government fulfils the widening gap in senior housing.
This means decisive action from policymakers which greenlights the development of more specialist retirement properties and mandates their inclusion in any new development.
Nick Sanderson, Audley Group CEO
Our Opinion
The housing market is a complex construct with many parts. The three buyer groups, first-timers, second-steppers and last-timers, all play a vital role in keeping the market going.
If one group isn’t playing its part, the whole market gets derailed. If first-time buyers can’t afford to get on the housing ladder, second-steppers can’t sell their homes to move on to bigger ones.
Secon-steppers also rely on older homeowners to downsize and vacate the bigger family homes they want to move into. It’s all a fine-tuned machine that only works if all the cogs are turning.
We already have a situation where many first-time buyers aren’t able to afford to own their own home. This means less first-timers are in the market to buy the homes of second-steppers.
But now, downsizers are also reluctant to move out of the bigger family homes, which reduces the number of second-stepper homes available. Effectively the current situation traps many young families in their homes that are too small for them.
If the underlying issues aren’t solved, we could see our property market derailed. Abolishing stamp duty for people downsizing is definitely a way to keep the cycle going.
However, while finances are a major challenge for older people, a lack of appropriate retirement housing is also an issue, which needs addressing. We can’t help but feel that the whole system needs to be reassessed and reformed.
This includes planning permissions, stamp duty and the buying/selling process in general. We have tried tinkering at the edges for a long time now; it’s time to overhaul the whole system.
