Would property prices decrease in London/SE if there was a new property tax

[onlychildandhamster]

There is an article in the times, but the text has been replicated in this thread:

www.reddit.com/r/ukpolitics/comments/kz1oqv/rishi_sunak_eyes_tax_rises_in_march_budget_rishi/

While there will be no radical change to property taxes in this budget, ministers and officials are looking at the tally of winners and losers from the abolition of council tax and stamp duty.

They would be replaced with a proportional property tax, levied on the existing values of homes. Council tax is calculated on property valuations from 1991.

WPI’s analysis shows that the tax would be revenue-neutral — raising the same as council tax and stamp duty — if the levy were set at 0.48% of the value of a home.

That would mean someone owning a £150,000 house would pay £720 a year, just £60 a month. The average band D council tax in England for 2020-21 was £1,818. But a family in a £1m house would have to fork out £400 a month, or £4,800 a year.

Based on that figure of 0.48%, an owner of a £400k london flat like myself would be paying an extra £500 in tax per annum or around £40 plus quid a month so not the end of the world as opposed to Band C Council tax (my current band). However, the owners of £1 million properties would be the worst affected. And while most people on Mumsnet are probably not buyers of £1 million properties (though it is surprisingly common in certain areas), AIBU to think that people would think twice before offering a staggeringly high price for a property given that it would attract a permanent tax liability that would increase with price inflation and continue well into retirement.

The conventional wisdom here is that property is always a good investment as the mortgage would be paid off one day and council tax for Band D properties is not hugely dissimilar to smaller properties (my MIL in Band D pays hardly any more tax than me). However would you still think that if you would get hit with a property tax forever?

[quote onlychildandhamster]@JaninaDuszejko lol i am a 20 something and I did pay stamp duty on my flat. IYou have to pay stamp duty on any amount above 300k and its quite hard to buy anything below 300k in the SE, even if you are buying a 1 bed. And I am not rich at all. Far from it.[/quote]
Absolutely not true. A Rightmove search on one bed flats in London only with a ceiling price of £300k brings up 187 results. Extend that to the Home Counties and it would multiply. Try again.

@VinylDetective I didn't say impossible, i said that there are far fewer options. But the average purchase price of a FTB is 480k (at least thats what i remember from 2019) so most FTB would be paying stamp duty.

@VinylDetective on a lot of property threads on Mumsnet, they would stay stuff like you would struggle in Muswell Hill/Finchley with 800k for 3 beds when they absolutely are 3 beds in those areas for 800k. They are just garden flats and terraces and not what people would expect for a family (subjective). And of course the average price for a 3 bed in those areas is much higher than 800k.

thats what i meant it, not that you couldn't buy a 1 bed in a cheaper area for less than 300k, but if you are buying an average FTB property, you would struggle on less than 300k.

If you can afford to buy a flat of £400k alone then either have a very large deposit or a very high salary which means you could afford to pay stamp duty on everything above £125,000 like the rest of us.

Reality check: the average (median) salary in the UK is £31,461 which means unless you have a very large deposit a £400k property is unobtainable. If, as I assume is more likely, your salary is over £80k then you are in the top 5% of earners in the UK.

@JaninaDuszejko i bought it with DH and no we don't have high salaries! nowhere near 80k though I am 28 and Dh is 30 so I don't think most people in london earn that at that age.

We stayed with parents for 3 years and saved up 70k in that time. When we moved, we couldn't afford a removals van, we used uber!

We stayed with parents for 3 years and saved up 70k in that time. When we moved, we couldn't afford a removals van, we used uber!

Maybe you should have saved another £500 - after all, it would apparently only have taken you a week - to pay for a man and a van.

I was ten years older than you when I bought my first house. 30 years ago.

@VinylDetective we did have a few thousand but I guess after years of trying to do things cheaply, we just got used to it and it felt scary only having that few thousand. I mean, we could have moved into the flat and discovered there were big problems as it hadn't been lived in for a while. Plus we had a wedding which we postponed to buy the flat but kept some savings for. Sadly it's still postponed due to the pandemic, was supposed to be in 2020.

And yes if you have no dc and are very very stingy, it's possible to save 75% of salary if you don't pay rent. Appreciate not everyone has the option but that was how we did it. My MIL is younger than you but she does own her own home in London and she let me stay which probably makes her a saint considering when I moved in, all 4 of her children were still living with her. For a time, as my DH grew up in the box room, we took over her bedroom while she slept with one of her daughters! We only got our own room when one of her daughters moved away.

@JaninaDuszejko but anyway HTB inflates london property prices far more than stamp duty. London Help to buy allows you take a 40% loan from the government, in addition to the 5% deposit. they were flogging 2 bed flats in mill hill east (not very impressive part of north london) for 600K when I was looking. most of the HTB properties were extortionate, far above my budget and now as we are finding out, have cladding and can't be sold. Thats why I had to go for the resale market and as I was looking at school catchments (and my DH is quite picky about areas and it had to be in north london where he grew up), there wasn't any HTB in the areas I was looking at (many of them tend to be in gentrifying areas or the outer spiral of london where I assume is easier for developers to buy land rather than established suburbs). So i landed up with a 1930s mansion block style flat., which is why its cheaper than average.

But yeah when the shiny flats are so expensive, naturally the houses would be priced even higher as they have private gardens/are freehold.

Update: metro.co.uk/2021/01/17/rishi-sunak-urged-to-scrap-council-tax-and-stamp-duty-13918077/

It seems like they are suggesting replacing Council Tax AND stamp duty. Actually then i think i have my answer- it will cause property prices in London/SE to rise. But it would also mean greater supply of housing- a lot of families are put off by the cost of moving and do loft extensions instead. without stamp duty, some might be tempted to just move rather than take up a project. Likewise, a lot of older people also don't move because they don't want to pay stamp duty on a new home.

If stamp duty is abolished, it completely changes the numbers for me and may make it easier for me to move to a larger 3 bed flat in my area. For example if 3 bed flat is 700k, it would cost me £25k in stamp duty. However if there was no stamp duty but a property tax. that 25k can pay the difference (between my current countil tax and the new property tax) for 12 years. It may not work out like that, but hypothetically, it could.

fairershare.org.uk/

I am not sure howt they are calculating this, i inputted my details and it says that i will save £55 every year with a property value of 400k and barnet council tax band c. They are assuming the government would apply a discount (to avoid homeowners challenging the estimate, so estimated 350k), and they are adding an annualized stamp duty estimate (assuming I would move at some point to a property of at least similar value- I do aspire to move one day to a bigger flat so I guess this may apply). Hmmmm

I see onlychildandbomad is shouting the odds here. I wonder if bomad would have been quite as generous to you if they were paying an enormous property tax for decades....

No. I didn’t think so.

@TerryHearn I did tell her about it when i read about it, and she seemed quite unbothered tbh. She isn't hugely interested in money. She only has state pension and would probably have to downsize at some stage.

I am not supporting it, like i said in my OP, I would pay £500 more? and i said in PP, i am a bit sceptical about the calculator. Stamp duty is really high for second time buyers in london and so naturally, if the suggestion is to abolish it, then that does change things...

@TerryHearn and my MIL has always been supported by her dad. He helped her buy her flat, her house, pay al the bills she couldn't afford.

which is why she felt that she couldn't accept rent from DH and myself, even though we offered many times because her own father did far more for her.

Would work out £500 a year cheaper for us here (band e) as council tax is far higher for us than Londoners despite being a low income area

Multi-generational bomad. I see now. I think she would have been bothered if she was paying a property levy for decades. In short, she would have had to sell the house years before. I don’t see how a pension would cover a 0.48% property tax on a big house. You wouldn’t have been staying there rent free therefore and you would never have got together the deposit that bought you the flat that has you preening all over this thread. You’ve sort of knackered your own argument by backing a property tax as it would have worked very much against you in the first place. Funny that eh?

@TerryHearn She wouldn't have had to move because her dad is alive and still paying her expenses. I mean, she didn't need to move when she divorced and had to remortgage the house to pay out the ex husband a huge sum of money as she had help with that from BOMAD too. A bit specific to her. She is still working now and not pension age yet. However, if she doesn't get her inheritance, she would have to move with or without a property tax as state pension isn't really enough to sustain someone even with a fully paid up house (esp if fully paid up house needs repairs).

yeah sadly multi generational BOMAD seems to be the norm in london.

I don't understand the argument for combining a property sales tax (stamp duty) with a tax for local services. As someone living in London, it costs much the same to have my bin emptied here and for street lighting as it does in the north. Yet we should pay vastly different prices for the same service?
What connection has someone on £25k who has been renting all their life, with the wealth/tax of somebody who buys and sells £800k houses?

@TerryHearn also why be annoyed at me? Why not write letters to the Tory MP(s) supporting this. It wasn't my idea. I mean, I have never had an idea like this before; if you had asked me before who we should tax, I would have said landlords, second home owners and people who have empty homes.

@DianaT1969 Maybe its so that people from the London and SE don't feel left out!

Not annoyed. Just fascinated that someone would preen about how well they have done when they have been pumped up with bomad. And then once the bomad cheque has cleared back a change in a system that previously served them very well. Hypocrisy basically.

@TerryHearn not backing anything.Not quite sure what i think tbh.

Thats why I am weighing pros and cons and asking mumsnet.

@TerryHearn ahh you are a brexiter, that explains a lot. teehee