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Residential Property Sales Decline in 2023: Tax Revenues at Risk


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Residential property sales have witnessed a substantial decline in 2023, as months of rising interest rates have pushed first-time buyers out of the market, raising concerns about the potential impact on crucial tax revenues.

Insights from the Latest HMRC Transaction Data

According to the most recent transaction data from HMRC regarding stamp duty land tax payments, only 86,510 properties were sold in July 2023, representing a significant 16% drop compared to July 2022. This decline, indicative of the severity of the situation, underscores the challenges faced by the housing market.

Residential Property Sales decline

Experts in the field of real estate transactions have commented on the situation, stating that the provisional seasonally adjusted figures for UK residential transactions in July 2023 show a notable residential property sales decline of 16% compared to July 2022, with only a slight 1% increase from June 2023. This decline comes during a time that should typically see a surge in property purchases.

They continued, stating that persistent economic pressures and the lingering effects of high inflation make it increasingly unlikely to achieve property transaction levels seen a couple of years ago anytime soon. While one can hope for a reduction in inflationary pressures in the coming months, the burden of rising mortgage rates continues to hinder transactions.

Impact on Tax Revenue

Stamp duty land tax (SDLT) receipts amounted to £15.4 billion in the 2022-23 tax year. A residential property sales decline of 16% in transactions would have a significant impact on Treasury revenues.

When comparing transaction numbers to pre-COVID figures, the decline becomes even more evident. In July 2019, there were 98,310 transactions, whereas in July 2023, based on seasonally adjusted figures, there were only 86,510. During the pandemic, numbers spiked due to the government's decision to reduce SDLT rates, creating a brief surge in property sales that further inflated already high prices.

Residential Property Sales decline

"Aspiring homeowners are grappling with increasing financial burdens associated with property ownership, making it even more daunting to enter the property market. The absence of first-time buyers is causing stagnation across the entire market," experts in the field noted.

Nevertheless, some sectors of the market maintain confidence that the property market will remain relatively resilient, despite the base interest rate reaching 5.5%, pushing average mortgage rates to 6.75%.

Expert Perspectives on the Market Trends

Experts believe that "There was a significant year-on-year decrease in residential property transactions, down by 22% according to provisional non-seasonally adjusted estimates or 16% when seasonally adjusted. The modest 1% increase in transaction volumes from month to month, seasonally adjusted, doesn't necessarily indicate a turnaround in the property market. Instead, it suggests that there is still a substantial group of buyers capable of moving up the property ladder despite challenging market conditions."

This residential property sales decline poses challenges for both the housing market and government revenues, emphasising the need for careful economic management and potential policy adjustments to stimulate activity in the housing sector.

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