The Scottish property market is now suffering a “serious slowdown” and faces the risk of a major price correction as the controversial replacement for stamp duty continues to take its toll, according to the head of a leading estate agency.
Ken McEwan, chief executive of Edinburgh-based McEwan Fraser Legal, blamed the introduction of the land and buildings transaction tax (LBTT) for a steep drop-off in sales of high end homes and a 50 per cent drop in demand for second homes and buy-to-let properties.
Sellers of homes worth more than £1 million are being particularly hard hit according to McEwan with a fall of 40 per cent and there has also been a 25 per cent drop in demand for homes worth over £500,000.
The LBTT imposes a progressive levy on residential properties of 2 per cent on homes worth more than £145,000 and up to 12 per cent on those which sell for more than £750,000.
Buyers of holiday homes, buy-to-let properties and other second homes are charged an additional 3 per cent under the additional dwelling supplement (ADS).
LBTT was introduced in 2015 after powers over stamp duty were devolved and became the first domestic tax charged in Scotland since the Act of Union. However, it has consistently failed to raise as much revenue as expected amid claims the measure was poorly designed.
The Scottish Property Federation (SPF) has calculated that revenues generated by the LBTT in the past year are £57m down on Scottish Government forecasts because of fewer sales.
The Scottish Government argues LBTT benefits the vast majority of buyers and that, since its introduction, 93 per cent of taxpayers have paid either less tax compared to the previous system or no tax at all. However, in June finance secretary Derek Mackay said he may to look at shifting the bands for the tax amid growing concern over stagnating property sales.
McEwan warned the housing market faces the prospect of a serious correction if measures are not taken quickly.
“The Scottish Government appears to be oblivious to serious housing issues that are just round the corner. By removing ADS and easing LBTT ministers can avoid the market stagnating further and ultimately increase tax receipts.”
According to McEwan, many people who might have sold their homes in the past are opting to stay put and to upgrade their existing properties because they fear the cost of moving is too high.
A survey by the Halifax, published this week, shows that planning applications for home extensions have risen by 183 per cent in the past five years.
“Someone buying a home worth £400,000 faces a transaction tax bill of £25,300 which is seen by many as a massive disincentive to move, particularly if they haven’t yet sold their own property,” said McEwan.