The market distortion induced by new stamp duty rates for buy-to-let properties and second homes in the month before it was introduced has been underlined by new figures.
The Council of Mortgage Lenders said there were 162,000 property transactions in March, when under normal circumstances they might have expected to see just over 100,000.
The government introduced a new three percentage point surcharge on second homes and buy-to-let on April 1. This meant someone buying a second home valued at £750,000 before April 1 paid £27,500 in stamp duty; after that date, they paid £50,000.
Since the change had been announced in the 2015 Autumn Statement, buyers had plenty of time to push their purchase through. Even so, there was a rush to buy in March as the deadline closed in: the CML said it had never seen such a large distortion associated with a tax change.
Breaking down the extra transactions into types of buyer, the CML found most of the difference was accounted for by a rise in the number of cash transactions, for which landlords are often responsible but normally only account for 35 per cent of the market. There were 63,190 cash transactions in March, compared with the CML’s expectation of 35,300.
Buy-to-let house purchases showed the biggest proportional change, rising by 180 per cent on the previous month to 29,000 transactions, against the CML’s expectation of 10,900. Cash transactions went up by more than 80 per cent on February.
Estate agents and mortgage brokers predicted a drop-off in activity in April: this now appears to be taking place as the market quietens. On Monday, Halifax released its monthly house price index, showing that the annual growth rate in prices eased from 10.1 per cent to 9.2 per cent in April.
“Both the quarterly and annual rates are at their lowest since last autumn,” Halifax said. House prices in the three-month period to April were 1.5 per cent higher than in the preceding three months — the smallest quarterly increase since November 2015.
Housing experts pointed to another factor behind market volatility: the UK’s referendum on membership of the European Union. Foreign buyers in particular are wary of committing to a house purchase because of the potential impact of a Brexit vote on sterling.
Andrew McPhillips, chief economist at Yorkshire Building Society, said the market would be “relatively choppy” for the rest of the year because of uncertainty over the referendum. But he added that this would be offset by continued tight housing supply.
“Although the EU vote is likely to cause a drop in demand for some properties, it is likely that there will still be more prospective buyers than there are houses. This means that house prices may continue to increase beyond inflation and wage-growth at least in the short term, regardless of market uncertainty,” he said.