Lindsay Darroch explains his reservations about the ADS.

As promised, I thought that I would give you my further thoughts in relation to the Additional Dwelling Supplement. As readers of my blogs know, I am against this supplement as I feel 1) it will cause a manipulation of the market, 2) there will be unintended consequences and 3) it will put a brake on property investors buying certain properties which will have a blocking effect on the housing market, rather than the freeing up that was intended. I will answer these points in order:-

Manipulation of the Market – I can confirm from personal experience, and also from speaking to other property lawyers, that there was a massive increase in the number of property investors purchasing investment properties in February and March of this year, prior to the introduction of the surcharge. In my own local area of Dundee and Angus there was a 45 per cent increase in the number of flats sold in March. I have also been acting for a number of clients across Scotland and had to deal with rapidly increasing prices and competitive situations.

Unintended Consequences – Clients may want to assist a child in buying a property and the only option may be to incorporate themselves onto the Title – this will now carry an extra 3 per cent charge. Similarly, a separating couple where the person leaving the matrimonial home needs to buy another property will now incur the 3 per cent charge. The unfairness of the system seems very clear to me.

Blocking of the Housing Market – The surcharge was intended to price property investors out of the market to make it easier for first time buyers but in my experience, investors are generally not purchasing the types of properties that would be of interest to first time buyers. All that’s happened is there’s now a swathe of sellers who no longer have the property investors looking at their property or if they do, the investor has factored in the 3 per cent charge. This is perhaps not true in all cases as there will be some instances where it will be easier for first time buyers to step on the ladder because they are not competing with property investors, but I would suggest that this will be by far the minority of cases.

A drying up of the supply of rented properties will increase rents meaning it will be harder for people to save the requisite deposit to allow them on the property ladder. I would hope that the Government would use some of the 3 per cent surcharge to fund a scheme to assist first time buyers gain access to 95 per cent loan to value mortgages, thus minimising their deposit to 5 per cent.

I was also very interested to read an article by Phillip Aldrick in The Times on Saturday 23rd April. The article was based on the introduction of a Land Bank Tax – a stick to encourage developers to begin developing properties to feed into the market. This would have the benefit of alleviating the shortage of houses throughout the UK and would also help control prices, which continue to soar due to lack of supply. I would agree with this policy. He concluded:

“Taxes are not just about revenues, they can be used to change behaviour. Get a Land Bank policy right and it might not raise a penny but it could turn Britain’s dream of more houses into reality”.

In conclusion, I would urge the Government to rethink the Additional Dwelling Surcharge, introduce a Land Bank Tax and also change the Capital Gains Tax policies in relation to properties, using the extra funds raised to create a first time buyer fund.