The rush to beat an increase in the tax bill on buying a second home led to sharp rises in UK mortgage lending and house sales in March, two new sets of housing market data show.
Non-seasonally adjusted figures from HMRC show that 161,990 property sales of £40,000 or more were registered during the month, a 77% increase on the figure for March 2015. Rising house prices in recent years also helped to drive the figure to a higher level than any month during the last property boom.
Separate data from the Council of Mortgage Lenders shows gross lending was up by 43% month-on-month and 59% on the previous March at a total of £25.7bn. It was the highest March figure since 2007, before the downturn began.
Since 1 April, anyone paying more than £40,000 for a property other than their main home has faced a stamp duty surcharge in a change that was unveiled in November’s autumn statement. The extra three percentage points on these sales added £6,000 to the cost of buying a £200,000 property. Estate agents had reported that investors were keen to beat the change and had been bringing forward purchases to complete ahead of the new regime.
Mohammad Jamei, a CML economist, said: “Against a backdrop of a recovering market, the substantial jump in lending in March was significantly influenced by a late surge of activity to beat the government’s stamp duty change on second properties, which came into effect at the start of April.
“The distortion caused by this stamp duty change appears to be larger than any previous stamp duty change we’ve seen.”
Jamei said the market was now expected to slow down. “We expect there will be about 10,000 fewer mortgaged transactions each month in the second quarter of 2016 than would otherwise have been the case, offsetting the increase in activity seen in March.” he said.
The HMRC figures are for property purchases registered during the month, and can include transactions completed over several months. The data shows strong increases in all parts of the UK.
In England, the number of transactions over £40,000 hit 141,310 in March, compared with 81,320 in February and 78,240 in March 2015. In Scotland, the figure rose from 5,760 in February to 11,100, in Wales it was up to 6,570 and in Northern Ireland 3,010 sales were registered.
HMRC said long-term movement in the number of transactions reflected “the general performance of the housing market over the past nine years”.
Before the end of 2007 and the onset of the credit crunch the number of transactions rose constantly over a number of years to reach a peak of around 150,000 a month.
HMRC’s figures show a peak in December 2009, as a stamp duty holiday on properties costing between £125,000 and £175,000 came to an end, and another small peak in March 2012 as a relief for first-time buyers came to an end.
“The large increase in transactions for March 2016 is likely to be associated with the introduction of the higher rates on additional properties in April 2016,” HMRC said. “These measures were announced in the Autumn Statement 2015 for England, Wales and Northern Ireland, and in the Scottish government’s draft 2016-17 budget for Scotland. Additional non-tax factors may have played a role as well, for example the Bank of England’s plans to curb buy-to-let mortgages resulting in a rush to purchase.”
Lucian Cook, head of residential research at property firm Savills, said the figures confirmed “a frenzy of buying activity” before the 1 April tax changes, and underscored the significant distorting effect that stamp duty changes can have on the housing market.
He added: “This is clearly a one-off event and such volumes are unsustainable against a backdrop of economic uncertainty and the prospect of an increased regulatory environment for buy-to-let borrowing.
“We’d expect a significant fall in transaction levels in the second quarter of the year to offset the March activity and the stamp duty surcharge to act as a longer term drag on housing transactions.”
A Treasury spokesperson said: “The new higher rate of stamp duty on additional properties will help double the affordable housing budget and support even more first time buyers fulfil their ambition of owning their own home. We think that’s fair. It was right to consult on this policy to make sure it worked fairly and to allow buyers time to plan effectively.”