Mortgage brokers have said a stamp duty rebate to help homeowners retrofit their properties to make green home improvements is a good idea in principle, but in reality is unlikely to be successful.
As house prices have increased in recent years, a number of players in the industry have called for stamp duty reform.
Most recently NatWest called for the government to offer a rebate on the tax paid when purchasing a property to help fund energy efficiency improvements in homes.
As first reported by City AM, head of mortgages at the bank, Lloyd Cochrane, outlined how the lender is in favour of the government allowing households to reclaim the cost of their energy upgrades against their stamp duty in a two-year window.
Industry bodies like UK Finance have also previously supported the use of financial incentives to encourage people to upgrade the energy efficiency of their homes.
The trade association suggested that an ‘energy efficiency adjusted stamp duty’ could be utilised to increase demand for energy efficient properties and encourage homeowners to retrofit their homes or that centrally-funded council tax incentives could be used to support retrofitting.
Currently, first time buyers pay no stamp duty on properties valued at less than £400,000, while those moving homes pay none on properties valued under £300,000. Beyond this the tax is levied in tiers.
Govt's stamp duty tax bands after "mini" Budget
| Homeowner | First-time buyer | 2nd home | Overseas buyers |
£100,000 | 0 | 0 | £3,000 | £5,000 |
£200,000 | 0 | 0 | £6,000 | £10,000 |
£300,000 | £2,500 | 0 | £11,500 | £17,500 |
£400,000 | £7,500 | 0 | £19,500 | £27,500 |
£500,000 | £12,500 | £3750 | £22,500 | £32,500 |
£600,000 | £17,500 | £8750 | £25,500 | £37,500 |
Source: HW Fisher
Speaking to FTAdviser, R3 Mortgages director, Riz Malik said said using stamp duty for retrofitting is “an excellent, innovative idea” but that it would not work for a number of reasons.
“Firstly, the government although trying to visibly promote energy efficiency is not likely to do it at the expense of its tax revenue. Secondly, administering such a scheme would be exceptionally difficult,” Malik said.
“You would end up having a small number of preferred suppliers being approved and the PPE scandal showed us what happens in those circumstances,” he added.
Adding to these concerns, independent financial adviser at Mather and Murray Financial, Samuel Mather-Holgate said a stamp duty rebate scheme would alienate people who already own their homes.
“Why should someone who is buying a home get the benefit whilst existing owners don't?,” Mather-Holgate said.
Apart from this concern, Mather-Holgate said he supports the idea, partly because stamp duty is too high.
However, he said a scheme would need to go further, include more people and be sure to target those on modest incomes.
Others in the industry agreed with Mather-Holgate’s concern that building a scheme around stamp duty would benefit only those who paid higher stamp duty - ie, those with higher value properties.
Graham Cox, director of Self Employed Mortgage Hub, said: “Reclaiming stamp duty to pay the cost of energy efficiency upgrades is an excellent idea. But we also need to address the homeowners who aren't moving or didn't pay stamp in the first place because the transaction size was too small.
“It might be better to allow government-backed interest free loans or grants over say, 10 or 15 years with any repayments taken from pre-tax income.”
The cost and logistics of the scheme was also flagged as an issue.
Amit Patel, an adviser at Trinity Finance agreed that it is “a great idea in principle” but added: "The cost to set up the scheme will take years considering we have a change of ministers regularly."
"If the government were to offer rebates then they will recoup the lost tax revenue by raising taxes elsewhere,” Patel said.
A government spokesperson told FTAdviser: “Thanks to government support, the number of homes with an energy efficiency rating of C or above has gone from 13 per cent in 2010 to 46 per cent and rising. We are investing over £6.6bnin this parliament with a further £6bn committed to 2028 to help decarbonise homes and buildings, and to ensure all homes meet EPC band C by 2035."
They also highlighted the energy company obligation and said this will “help hundreds of thousands of families with energy-saving measures such as insulation, with average energy bill savings of around £300 a year.”
The UK has some of the oldest housing stock in Europe and housing represents one of the UK’s toughest challenges in meeting its 2050 net zero emissions targets.
According to non-profit group the Energy Saving Trust, roughly a third of all the heat in an uninsulated house escapes through walls, while around a quarter escapes through the roof.
In 2021, the government announced a £5,000-per-household grant for the installation of a heat pump, but other than this there is little other financial support available for retrofitting.
The Energy Saving Trust estimates insulating walls and lofts and fitting double-glazing in a typical three-bedroom, semi-detached house would cost close to £9,000. While the cost of fitting a heat pump can cost £10,000 or more.
While the cost of this is likely to be recouped through lower energy bills over time, the upfront cost remains prohibitive for most UK homeowners.
jane.matthews@ft.com
