Is stamp duty impacting UK housing market liquidity?

We all know that the UK government has used the housing market as a means of increasing its tax take in recent times. Unfortunately, it looks as though there are more tax rises to come in due course as the authorities struggle to balance their books. However, there is a growing opinion that stamp duty on the UK housing market is impacting liquidity.

Elderly homeowners stop downsizing

There are many elements to look at when considering the liquidity of the UK housing market. One such factor which is having an impact on liquidity is the number of elderly homeowners downsizing in later years. The problem is that house prices have increased dramatically over the last 50 years and even downsizing from a relatively high value property to a smaller house can incur high stamp duty costs. As a consequence, many people are now delaying any potential downsizing due to the tax regime changes and this is having a significant impact upon liquidity in the UK housing market.

Young families struggling

It is also becoming evident that couples are struggling to upsize their properties as they require more bedrooms to keep up with their growing family. Historically this has been a fairly fluid area of the market and one which has helped to maintain an element of liquidity (and help first time buyers). However, as demand from young families looking to upsize continues to fall this is starting to have an impact on the property market.

So, we have elderly homeowners delaying a potential downsizing of their property and we have young families delaying a potential upsizing of their property. In a perfect world those with a growing family would take over the mantle of those whose family may have flown the nest leaving them with a large property they no longer require – people looking to downsize.

London School of Economics

The London School of Economics has calculated that by eliminating stamp duty there would be an immediate 25% increase in the rate of house moving across the UK. This would result in a significant increase in liquidity and ensure that there are more suitable properties for buyers to consider. As a consequence we would see greater competition focused across a larger number of properties thereby reducing the chance of prices being squeezed unnaturally higher.

According to Lloyds Bank, 75% of first-time buyers are now caught by the UK government’s property stamp duty tax which is up from just 47% back in 2001. When you also bear in mind the value property today we can safely assume that the UK government’s tax take has increased dramatically.


There are many elements of the UK housing market which need “fixed” because we have elderly homeowners reluctant to downgrade, we have families reluctant to upgrade which is having a major impact upon liquidity. This in turn is squeezing prices higher and higher, out of the reach of many first-time buyers, exacerbating an already challenging situation. Surely the UK government could introduce a short-term stamp duty embargo to breathe extra life into the UK housing market?

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