Homebuyers racing to complete their purchases, solicitors up all night processing claims, removals companies fully booked, the housing market on the brink of collapse…it is fair to say many media outlets have drawn a fairly apocalyptic picture of the incoming end to the Treasury’s so-called “Stamp Duty Holiday”. But what is all the fuss about, and how might it actually affect the property industry, and you?
What is Stamp Duty?
Formally known as Stamp Duty Land Tax (SDLT), it is a tax governments place on legal documents, usually in the transfer of assets or property. In England and Northern Ireland, Stamp Duty is applied to those who have bought a freehold property, a new or existing leasehold, a property through a shared ownership scheme, or have been transferred land or property in exchange for payment, for example, taken on a mortgage or bought a share in a house.
The current threshold for SDLT payments is £500,000, or £150,000 on non-residential land or properties, however, this changes from tomorrow until 30th September 2021, when the threshold will be halved to £250,000, before being halved again to £125,000, the same as the threshold before 8th July 2020. The exception will be for first-time buyers, who will continue not to pay SDLT on properties below £500,000.
Why was the threshold changed?
In short, as with so many things over the past two years, the Stamp Duty threshold was increased because of the effect Covid-19 lockdowns have had on the property industry. The so-called “Stamp Duty Holiday” was introduced in order to provide more incentive to potential buyers, or, according to Chancellor Rishi Sunak, to “turbo-charge” a “newly-struggling housing market”.
The result of this was a veritable housing boom, with the cost of buying a home rising to a record £261,743 in May 2021. According to independent data from Halifax, house prices have increased by an average of more than £22,000 over the past 12 months, even as many other parts of the British economy have been brought to their knees by the pandemic.
It was also the busiest time for the property industry since the post-global financial crisis years. HMRC data showed that almost 115,000 housing transactions took place in May 2021, nearly 140 per cent higher than in the same month the previous year, though the country was under lockdown during both periods. Jeremy Leaf, a former chairman of RICS, says: “It’s been a good time to sell a perhaps not-very-sellable property.”
Who will be affected when the Holiday ends?
Hundreds of thousands of recent new homeowners are rushing to complete their purchases before the 30 June stamp duty holiday deadline, or they will face having to fork out up to £15,000 depending on the value of their new purchase.
Property site Zoopla has expressed concern that buyers who have already borrowed up to their maximum limit, but miss the deadline, will not have the extra funds needed to pay their resulting tax bill and will be forced to pull out – potentially putting an entire chain of sales at risk.
As some of these agreements were made as far back as spring, without knowledge of this deadline, the confusion has led to some extreme horror stories of buyers being denied entry to their new homes on the day they moved in.
Conveyancing solicitors have been struggling to complete purchases before today's deadline, with some working until 1am every night, even prior to this week, in an effort to complete as many sales as possible. Solicitors have called for the government to amend the deadline to the exchange of contract, rather than completion, to ease pressure on those involved in the house-buying process.
Removal company Pickfords said it had been “overwhelmed” by the number of homebuyers trying to book a slot during the last week of June, confirming that those days were “the busiest it had ever seen”, while James Removals confirmed earlier this week that they are “fully-booked through July”.
While calls to scrap Stamp Duty altogether are nothing new, a recent survey by Twenty7Tec showed that two thirds of their employees would prefer a three-month extension to the deadline, with the aim to relieve pressure on solicitors, reduce the backlog with removals companies and keep the market buoyant for as long as possible, despite the fact it has hugely increased their workload.
A survey by the same company also revealed calls to increase the threshold for those purposely looking to downsize, in order to provide incentive to fill housing space that is currently unoccupied, thus reducing the need for expensive new build projects.
What will happen next?
While house prices have, on the whole, increased since the Stamp Duty Holiday was introduced, many believe this to be an artificial increase, as asking prices in some markets have been more flexible due to the pandemic, which could mean that fewer deals are falling through. According to Knight Frank, nearly all of the London boroughs have been registering large percentages, mostly over a third, of properties going under offer at a reduced price in the first 6 months of this year compared to those in 2020.
Despite the alarmist tone of a lot of publications, Iain Swatton, head of intermediaries at the mortgage firm Dashly, is not expecting the market to implode. He says: “The property market is as strong as ever and a more sensible prediction is that after the stamp duty deadline has passed, we’ll likely see more of a soft landing and slowed activity levels.”
Whether or not calls to extend the deadline are answered before Wednesday, the fact that a lot of families and groups may have large amounts of income saved from over a year of lockdown measures is likely to continue this property boom for a little while longer, although Swatton has hinted that this could bring about what he calls an “improve rather than move” trend, whereby homeowners and potential buyers “may consider finally getting round to that loft extension or revamping the family bathroom.”
How have you been affected by the Stamp Duty Holiday deadline? We’d love to hear from you in the comments.
At Prince Krofa & Sons, our surveyors have been overwhelmed with the influx of instructions to carry out surveys for prospective buyers and will continue to provide this service long after the Stamp Duty Holiday.