tax stamp duty

How is the stamp duty holiday affecting the UK housing market so far?

Back in July, the stamp duty threshold was raised on property purchases, saving buyers up to £15,000. Here’s how it’s already stimulating the UK housing market.

Last month, Chancellor Rishi Sunak announced new tax measures to try and get the property market moving again. While transactions had slowed down significantly thanks to logistic as well as confidence issues in the sector, the intention of the stamp duty cut was to bring more buyers back to the market.

The current threshold means buyers don’t have to pay any stamp duty on homes worth £500,000 or less. This applies to all residential property, although second home-buyers will still pay 3% stamp duty. As such, you can now save as much as £15,000 on your house purchase tax bill. The fact that the scheme will currently only run until 31st March 2021 is driving buyers to act quickly.

Increasing enquiries direct result of the cut

A new report from Savills looks in more detail at what we’ve seen so far across the housing market. Overall, it says, the biggest winners are those buying at the lower end, including people using Help to Buy. As the scheme applies exclusively to new-builds, demand in this area has soared as a direct result of the cut.

Within the Savills team, new-build buyer enquiries increased by 51% on the day of the announcement. In the week to 28th July, demand was still 15% higher than it had been before the cut.

The Help to Buy scheme has also been extended by a further two months by the government. This gives new homes until 28th February 2021 for practical completion, and 31st March for legal completion, to qualify.

The Savills report says: “Housebuilders will face intense pressure to complete homes swiftly to hit these dates.

“We anticipate a spike in demand from people taking advantage of HTB before the price caps and eligibility criteria change on 31st March – the same day the stamp duty holiday ends.”

First-time buyers vs property investors

Unlike with previous government initiatives, the latest change does not really target first-time buyers. As they could already take advantage of first-time buyer relief, it will make less difference to this category.

However, for those who are buying properties worth more than the £300,000 FTB cap, they will make savings. This will be prevalent in more expensive areas like London and the south-east in particular. But Savills points out that, as more people may now be moving home or upsizing, more homes may also become available to this buyer group.

What about property investors? Although they are still liable to pay the 3% stamp duty surcharge, they will save money. According to Savills, the new lower tax threshold will bring a flurry of investor demand to the market.

The report adds: “The stamp duty holiday will make the difference between a home being a profitable or a loss-making purchase for many.”

This is more likely to affect individual purchases than block deals, though. This is because bulk deals with large-scale investors are likely to complete after the holiday ends next year. But investors who had been on the fence are now scrambling to get their portfolios up to scratch while there are savings to be made.

Bringing confidence back to the market

In the latest house price index from Halifax, house prices increased by 1.6% from June to July. This represents an annual change of +3.8% from 2019, showing the start of a “mini-boom” in the market.

According to Halifax managing director Russell Galley, the government’s stamp duty cut has supported the post-lockdown spike. He says that confidence is currently growing and the future looks “brighter than expected”.

Alan Cleary, group managing director at OneSavings Bank for mortgages, is also positive on the results.

He says: “The stamp duty holiday has clearly provided a further boost to affordability and has naturally stimulated demand. With supply having returned to more normal levels, overall levels of transactions can be expected to increase materially in the coming months.”

“Buyers who put their plans on hold during lockdown have now been given the confidence to return to the market.”

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