Explain how reduced SDLT increases house prices

[Locke]

11 minutes ago, iamnumerate said:

In this case the vendor is someone trying strong arm tactics, I guess he would try something else if it were not for SDLT.  In short I don't understand either.

Ok, I've had a little think.

I think what will happen is

The price paid by FTB falls

The amount of money received by sellers increases

The price paid by anyone other than FTB rises

 

Scenario:

Seller wants £100k for their house.

SDLT is 10% for the sake of argument

A buyer has to pay £110k (£100k + 10%) to buy the house

SDLT is abolished for FTB

Seller could accept £100k from FTB and still have the same amount of money

As the FTB has a "spare" £10k, the seller will accept £105k for the house

Normal buyers now must pay £105k + SDLT

End result:

FTB could have a house for £105k instead of £110k

Seller can get £105k instead of £100k

Normal buyers have to pay £115k instead of £110k

Edited November 23, 2017 by Locke

[PropertyMania]

2 hours ago, Greg Bowman said:

Genuine question I 'sold out' at what I think is peak for my area in July and renting because no stock to down size to of what I considered value. How am I worse off if I sold for more than I would get now and my next purchase you believe will be cheaper ?

We're talking about the tax effect with EVERYTHING ELSE BEING EQUAL. Why is this so hard to understand? And anyway I said the stamp duty cut will lead to more buyers AND more sellers, which means net of tax, both sides are better off. 

[guest_northshore]

16 minutes ago, Locke said:

Ok, I've had a little think.

I think what will happen is

The price paid by FTB falls

The amount of money received by sellers increases

The price paid by anyone other than FTB rises

Scenario...

Your scenerio actually outlines that SDLT burden falls on the seller not buyer. Buyer can afford total £110k - if SDLT was higher than 10% that means less remaining for the seller.

Therefore the rest doesn't make sense. Why would the seller offer @ £100k or £105k when they know the buyer can afford £110k - charity?

[Locke]

Just now, guest_northshore said:

Your scenerio actually outlines that SDLT burden falls on the seller not buyer. Buyer can afford total £110k - if SDLT was higher than 10% that means less remaining for the seller.

Therefore the rest doesn't make sense. Why would the seller offer @ £100k or £105k when they know the buyer can afford £110k - charity?

They are competing with other sellers.

 

Something did catch my attention: apparently SDLT isn't included in a mortgage. This would then add validity to the leveraged increase idea. If someone has 80% LTV, that means they had 20% deposit + 5% SDLT cash. With abolishing SDLT, they now effectively have a quarter more deposit, which means they theoretically could afford a quarter more house.

As the size of the mortgage you can get depends on the absolute price of the house, i'm not sure it will shake out to increase as much as the increase in deposit size.

Scenario:

£100K house + £10k SDLT. 

20% down, so £20k deposit, plus £10k cash for SDLT 

SDLT abolished

£30k cash at 20% down now lets you buy a £150k house.

The bank may not lend the extra £50k, because perhaps your income does not support the higher mortgage payments, so they might let you do £120k at 25% down instead.

[Greg Bowman]

20 minutes ago, PropertyMania said:

We're talking about the tax effect with EVERYTHING ELSE BEING EQUAL. Why is this so hard to understand? And anyway I said the stamp duty cut will lead to more buyers AND more sellers, which means net of tax, both sides are better off. 

A bit SHOUTY SHOUTY aren't we newbie.....I was questioning your very specific statement which as someone out of the market today I am worse off because of the change and yet you, yourself say prices will go down - surely I will be better off not worse off. Everything else is equal because nothing else changed so that can be discounted.

[guest_northshore]

1 minute ago, Locke said:

They are competing with other sellers.

Something did catch my attention: apparently SDLT isn't included in a mortgage. This would then add validity to the leveraged increase idea. If someone has 80% LTV, that means they had 20% deposit + 5% SDLT cash. With abolishing SDLT, they now effectively have a quarter more deposit, which means they theoretically could afford a quarter more house.

As the size of the mortgage you can get depends on the absolute price of the house, i'm not sure it will shake out to increase as much as the increase in deposit size.

Scenario:

£100K house + £10k SDLT. 

20% down, so £20k deposit, plus £10k cash for SDLT 

SDLT abolished

£30k cash at 20% down now lets you buy a £150k house.

The bank may not lend the extra £50k, because perhaps your income does not support the higher mortgage payments, so they might let you do £120k at 25% down instead.

Competing - possibly on an occassional & individual circumstances basis, but there's no underlying economic incentive for sellers to do that. Basically because they own all the houses (land) and FTBs don't own any. It's the same reason builders don't build more than they can sell at max price, however much Gov pretends to grumble about it.

Leverage - yep although hopefully new affordability rules will limit that.

 

[Locke]

5 minutes ago, guest_northshore said:

Competing - possibly on an occassional & individual circumstances basis, but there's no underlying economic incentive for sellers to do that. Basically because they own all the houses (land) and FTBs don't own any. It's the same reason builders don't build more than they can sell at max price, however much Gov pretends to grumble about it.

Leverage - yep although hopefully new affordability rules will limit that.

 

They are competing with each other, other locations, the buyer's option to rent, or not move at all etc etc etc

You are attempting to argue against the price mechanism.

 

If they own all the land, why not sell at a billion pounds. After all, they aren't competing, right?

[Greg Bowman]

19 minutes ago, guest_northshore said:

Your scenerio actually outlines that SDLT burden falls on the seller not buyer. Buyer can afford total £110k - if SDLT was higher than 10% that means less remaining for the seller.

Therefore the rest doesn't make sense. Why would the seller offer @ £100k or £105k when they know the buyer can afford £110k - charity?

Personally don't think it is going to much difference at all - the economics and emotions of selling are individual at point of sale and purchase ie.

Forced seller - will just want to get the thing away

New builds - Production line same as above if you are locked in they would rather get the unit away than f*** you around

FTB home but seller not moving up - Got to be a very small proportion of the total market at this level, might be tempted to F*** you around but risk is great - you have tremendous choice at this level once you can get your hands on the relevant mortgage etc  

FTB Home Seller moving up - crucial step for them likely semi after a flat to start a family, no driver to F*** you around and chains flakey enough as it is

In fact  a change of this magnitude can happen anyway with people getting funny on the day of exchange _ I have had it

[Greg Bowman]

19 minutes ago, Locke said:

They are competing with other sellers.

 

Something did catch my attention: apparently SDLT isn't included in a mortgage. This would then add validity to the leveraged increase idea. If someone has 80% LTV, that means they had 20% deposit + 5% SDLT cash. With abolishing SDLT, they now effectively have a quarter more deposit, which means they theoretically could afford a quarter more house.

As the size of the mortgage you can get depends on the absolute price of the house, i'm not sure it will shake out to increase as much as the increase in deposit size.

Scenario:

£100K house + £10k SDLT. 

20% down, so £20k deposit, plus £10k cash for SDLT 

SDLT abolished

£30k cash at 20% down now lets you buy a £150k house.

The bank may not lend the extra £50k, because perhaps your income does not support the higher mortgage payments, so they might let you do £120k at 25% down instead.

That's the secondary factor the first is how much you earn for the multiple surely ?

[guest_northshore]

5 minutes ago, Locke said:

They are competing with each other, other locations, the buyer's option to rent, or not move at all etc etc etc

You are attempting to argue against the price mechanism.

If they own all the land, why not sell at a billion pounds. After all, they aren't competing, right?

You've already outlined how higher SDLT will lead to lower prices. I don't need to explain why the opposite is also correct as you can follow your own same logic.

Locations/rent - of course, but we're talking about the effect of SDLT not location or tenure substitution.

Billion pounds -  Don't get why you add that; it's as simple as them selling for max a buyer can pay. Whatever that is.

[Locke]

1 minute ago, Greg Bowman said:

That's the secondary factor the first is how much you earn for the multiple surely ?

Pardon the phraseology. A bank is more willing to lend 80% on a £100k house than 80% on a £1million house.

[Locke]

Just now, guest_northshore said:

You've already outlined how higher SDLT will lead to lower prices. I don't need to explain why the opposite is also correct as you can follow your own same logic.

Locations/rent - of course, but we're talking about the effect of SDLT not location or tenure substitution.

Billion pounds -  Don't get why you add that; it's as simple as them selling for max a buyer can pay. Whatever that is.

I don't know how to explain competition to you. Just because buyers could theoretically pony up more, doesn't mean they will. Maybe they would prefer a shorter mortgage term, or just not to move.

 

I'm not sure now what the impact on house prices will be

[guest_northshore]

7 minutes ago, Greg Bowman said:

Personally don't think it is going to much difference at all - the economics and emotions of selling are individual at point of sale and purchase ie.

Forced seller - will just want to get the thing away

New builds - Production line same as above if you are locked in they would rather get the unit away than f*** you around

FTB home but seller not moving up - Got to be a very small proportion of the total market at this level, might be tempted to F*** you around but risk is great - you have tremendous choice at this level once you can get your hands on the relevant mortgage etc  

FTB Home Seller moving up - crucial step for them likely semi after a flat to start a family, no driver to F*** you around and chains flakey enough as it is

In fact  a change of this magnitude can happen anyway with people getting funny on the day of exchange _ I have had it

Perhaps. The thread's turned into a what-will-happen, rather than evidence and mechanism of how-SDLT-increases-prices. Not a psychic.

[Greg Bowman]

5 minutes ago, Locke said:

Pardon the phraseology. A bank is more willing to lend 80% on a £100k house than 80% on a £1million house.

No pardon required got it  Thanks

[Greg Bowman]

Just now, guest_northshore said:

Perhaps. The thread's turned into a what-will-happen, rather than evidence and mechanism of how-SDLT-increases-prices. Not a psychic.

+1 This market is manipulated, loaded and F***** up so who knows ?

[guest_northshore]

10 minutes ago, Locke said:

I don't know how to explain competition to you. Just because buyers could theoretically pony up more, doesn't mean they will. Maybe they would prefer a shorter mortgage term, or just not to move.

I'm not sure now what the impact on house prices will be

Likewise. Obviously other things like earnings, credit, events etc can change things.

But I honestly cannot understand how the underlying incidence & supply/demand interactions of stuff like this are still being debated here. I worry a lot about how easily Gov and their mates can hoodwink the general public.

[Greg Bowman]

11 minutes ago, guest_northshore said:

Likewise. Obviously other things like earnings, credit, events etc can change things.

But I honestly cannot understand how the underlying incidence & supply/demand interactions of stuff like this are still being debated here. I worry a lot about how easily Gov and their mates can hoodwink the general public.

Because you or I don't know nor does anyone even an army of zero EQ high IQ quants with spreadsheets. Hence the debate on here. I would stick around and stop passing judgement....you will find some invaluable advice on here trust me not just on houses.

Speaking as one of the nasty boomers - its not complicated is it ? the government wants to steal as much of my money as it can, I don't want that to happen so I am always on the lookout for an angle, be that investing, timing markets etc. There are people on here far more successful than us who have legally and successfully organised their life to achieve that. It's not my only source of info but a  good one

[PropertyMania]

1 hour ago, Greg Bowman said:

A bit SHOUTY SHOUTY aren't we newbie.....I was questioning your very specific statement which as someone out of the market today I am worse off because of the change and yet you, yourself say prices will go down - surely I will be better off not worse off. Everything else is equal because nothing else changed so that can be discounted.

Prices down (net of tax) for first time buyers; prices up for everyone else. As you sold before the change, you didn't benefit from the higher sell price and  don't get the  first time buyer discount if you buy again. That is all. But this all small beer vs the crash that's coming, so you did the right thing by selling IMO. Sorry for shouting.

[guest_northshore]

15 minutes ago, Greg Bowman said:

Because you or I don't know nor does anyone even an army of zero EQ high IQ quants with spreadsheets. Hence the debate on here. I would stick around and stop passing judgement....you will find some invaluable advice on here trust me not just on houses.

Speaking as one of the nasty boomers - its not complicated is it ? the government wants to steal as much of my money as it can, I don't want that to happen so I am always on the lookout for an angle, be that investing, timing markets etc. There are people on here far more successful than us who have legally and successfully organised their life to achieve that. It's not my only source of info but a  good one

Knowledge - some interplays are known and implemented for known reasons, even if nobody knows what may happen to change the course. I'm comfortable passing judgement on that.

Not sure what's really meant by the rest, but yeah good luck.

[rollover]

.

Edited November 23, 2017 by rollover

[BorrowToLeech]

12 hours ago, iamnumerate said:

Please see my above post, yes prices rose but 60% of the gain went to the buyers.

During a stamp duty holiday, this is not a stamp duty holiday and there is a difference. 

Even so, it's perfectly consistent with the consensus view that stamp duty feeds directly through to prices. 

[BorrowToLeech]

7 hours ago, Locke said:

Tripe.

Fuel duty is 65% of the price you pay at the pump. If the government abolished fuel duty, do you think petrol prices would fall or rise?

Petrol is pretty much the exact opposite case to housing. 

All petrol is basically the same, there's a ton of competition, and loads of fuel to go around. 

People shop around, and so few petrol stations can get away with charging over the odds.  You can't buy up all the supply, and start charging more because someone will undercut you. The only reason they won't is if their supply cost exceeds the selling price. 

So price is set almost entirely by the cost of supply, and so tax, which is an additional cost, falls on the buyer. 

Dont believe me?  

Well 'Landlording' oil is exactly what OPEC tries to do, and despite controlling a serious chunk of world supply, it doesn't really work, because of Russia and the US.  

Your local texaco sure as hell can't get away with it.  In contrast, any moron can collect rent from houses.

In general, the split between buyer and seller varies according to the particular market.  If you want an obvious example of taxes pushing down prices, look at wages.

Does employer national insurance push wages up or down?  The answer is it depends, but for some people the price at which they can sell their Labour is lower because their employer is asked to pay a tax, just like housing.

[iamnumerate]

8 hours ago, BuyToLeech said:

During a stamp duty holiday, this is not a stamp duty holiday and there is a difference. 

Even so, it's perfectly consistent with the consensus view that stamp duty feeds directly through to prices. 

Perhaps I have not made myself clear, I don't want stamp duty abolished for all transactions, just for owner occupiers.  Obviously in that case the price of a £400k house cannot go to £410k because some of the potential buyers (BTL) will still be only able to pay £400k.  If all £400k houses were to go to £410k then a lot of BTL's  buyers would drop out and the vendor would be lucky to get £400k.

A) None of your links look at that scenario

B') All of them say stamp duty is a bad tax, do you think it is?

[winkie]

... anecdotal, but small time private investors that have been buying property to let out over the last 17 years with a mortgage, have in the most part been snapping up first time buyer style property.....have seen roads where once were all owner occupied mainly first freehold properties turn into property for rent only.....the whole dynamics of an area has changed, fewer children, more over crowding, more coming and going, those living there have less of a stake in the house/area they live in.......would be good if ever sold they could be sold back to the people who once used to live there stamp duty free.....

[Greg Bowman]

14 hours ago, PropertyMania said:

Prices down (net of tax) for first time buyers; prices up for everyone else. As you sold before the change, you didn't benefit from the higher sell price and  don't get the  first time buyer discount if you buy again. That is all. But this all small beer vs the crash that's coming, so you did the right thing by selling IMO. Sorry for shouting.

Sorry for being high and mighty ? perhaps didn’t make myself clear sold a high price house where not sure this change would feed through to £1 million + houses 

It is hard enough getting a buyer at that level only had 4 viewings and 2 offers so power very much in the hands of the buyer (which is a glimpse into the future for people who believe their property is their pension and it will be easy to liquidate )