Housing shortage: Could a downsizing Stamp Duty relief provide a solution?

A housing shortage is one of the reasons why first-time buyers are struggling to get on the property ladder. A new report suggests incentivising older homeowners to move to smaller properties could ease some of the pressure.

A lack of suitable properties in some areas is driving up prices and making it more difficult for people to move up the property ladder. While property prices have started to fall in recent months as interest rates affect the cost of borrowing, when you look at the bigger picture, the average price of a home has soared.

Indeed, according to the Land Registry, at the start of 2000, the average house price was almost £85,000. Fast forward to August 2023, and the average price had more than tripled to more than £290,000.

The housing shortage has been a key issue in politics. In fact, the 2019 Conservative manifesto set out a target of building 300,000 homes a year by the mid-2020s – a goal it’s not currently on track to meet.

The latest Office of National Statistics data shows 45,050 houses were built between January and March 2023. At that pace, just 180,200 homes would be built over the year.

It was a topic that was covered in the Autumn Statement in October. Chancellor Jeremey Hunt announced the government would invest an additional £32 million across housing and planning.

However, building more homes could be just part of the solution. Finding a way to support older homeowners to downsize could also provide more families with a property that suits their needs.

Almost 9 in 10 people aged 65–79 live in “under-occupied” housing

Research from the International Longevity Centre (ILC) indicates that almost 9 in 10 people aged 65–79 live in homes that are “under-occupied” – 50% live in a home with two or more excess bedrooms.

If older households, which may not require as much room as a family with young children, choose to downsize, it could improve property supply.

As well as potentially easing the housing challenge, it could also provide an opportunity for older generations to find a home that suits their needs.

The ILC report added that more than half of people aged over 50 who find daily activities difficult don’t have any health-related home adaptation, which might make their routine easier to manage.

Of course, there are plenty of reasons why older generations might not want to leave their current home. They might be attached to the property because of the memories they have there, or family and friends are close by to offer support if they need it. However, some may be choosing to stay put to avoid paying Stamp Duty.

You could face a Stamp Duty bill of £2,500 when buying a property worth £300,000

In England and Northern Ireland, Stamp Duty is a type of tax you pay when buying property.

In 2023/24, Stamp Duty only applies to properties that are purchased for more than £250,000. With Land Registry data showing the average property price is around £290,000, it’s something many buyers will need to consider.

The rate of Stamp Duty will depend on the value of the property. In 2023/24, the rates are:

• Up to £250,000 – 0%
• The next £675,000 (the portion from £250,001 to £925,000) – 5%
• The next £575,000 (the portion from £925,001 to £1.5 million) – 10%
• The remaining amount (the portion above £1.5 million) – 12%.

If the sale will result in you owning more than one property, there is usually a 3% surcharge on top of these rates.

Assuming the home you’re buying will be the only property you’ll own once the transaction is completed, purchasing a home worth £300,000 would lead to a bill of £2,500.

It’s a bill that could mean some older homeowners are putting off downsizing. You would also have other expenses to consider, from paying a solicitor to the cost of moving your furniture.

Please note, that there are similar taxes in Scotland (Land and Buildings Transaction Tax) and Wales (Land Transaction Tax). However, the rates of tax and relief are different.

A relief to slash Stamp Duty for downsizers could ease the housing shortage

If relief was provided to cut or remove a potential Stamp Duty bill when you’re moving to a smaller property, more homeowners might be tempted to downsize.

There’s already a similar relief for first-time buyers.

When purchasing your first home, no Stamp Duty is due if the value of the property is below £425,000. First-time buyers also benefit from a lower rate of 5% on the portion between £425,001 to £625,000 as long as the total value of the property doesn’t exceed £625,000.

So, a relief for homeowners who are looking to downsize could be implemented and might just provide an incentive for older generations to move into smaller properties and ease the pressure on the housing stock.

Contact us to talk about mortgages

If you’re buying a home and using a mortgage, we could guide you through the application process. Whether you’re downsizing or looking to take a step up the property ladder, working with a mortgage broker may help you find a mortgage deal that’s right for you and potentially save you money by accessing a competitive rate of interest.

Please contact us to discuss how we could lend our support to you.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

HM Revenue and Customs’ practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Approved by The Openwork Partnership on 11/12/2023.