In this week’s Spring Budget, Rishi Sunak extended the Stamp Duty holiday (which from July 2020, suspended the tax on the first £500,000 of all property purchases in England). The holiday was due to end on 31 March but will now continue for a further three months until 30 June. After that date, the starting rate of Stamp Duty will fall to £250,000 until 30 September, thereafter, returning to £125,000 – the level it was before the holiday.
Whilst this extension will of course be welcomed by those who have been frantically trying to get their sale/purchase over the line, my concern is that extending the holiday to everyone, not just those already in the process, simply kicks the can down the street for the problems to ensue in July.
There are several reasons I think the extension in its current format could be problematic:
Transaction Volumes
Although grateful for the surge in business, the current volume of transactions has left many in the sector, such as conveyancers and solicitors, at breaking point. Many are working at home without their usual support structure and this, coupled with high volumes of work, means the process is taking much longer.
The three-month extension may still not provide enough time for many of the more recent property deals to be completed, leaving these buyers and seller in the same position they faced at the end of March – having to pay Stamp Duty they may not have accounted for or finding their buyer pulls out.
Applicable to all
Similarly, by opening the extension to everyone, rather than making it only applicable to transactions which had already started, there is likely to be a further stampede of property buyers entering the ‘race’. In fact, Rightmove reported an immediate spike in activity on Budget Day following the chancellor Rishi Sunak’s announcement – it recorded its busiest day ever. The problems we were about to experience at the end of March are now just stored up for the end of June, and although the Chancellor has attempted to manage this with the tapering system until September, the property industry is facing some level of chaos over the summer.
House Prices
The property market re-opened in full force before the Stamp Duty holiday was introduced, driven by pent up demand from the first national lockdown and following Brexit. Adding the Stamp Duty holiday, whilst a welcome boost for many, has created an artificial bubble where house prices in many areas have increased to unsustainable levels (an average of 8.5% according to ONS).
This means that first time buyers are having to save more to come up with a deposit, when things were already difficult enough for them to get on the property ladder. Yes, it could be argued that the new Government-backed 95% mortgage loans, also announced in the Budget, will support FTBs, but on an inflated market that’s a risky place to be.
When the Stamp Duty holiday ends, there is a real risk that property prices may well go down meaning those who bought during this period may find they have overpaid, potentially negating any saving they made from not paying stamp duty.
The holiday has created a buoyant market and banks are currently more relaxed about lending. However, it is concerning that if unemployment starts to rise, or interest rates are pushed up in the future, some people could find they have stretched themselves too far and be stuck with a property they cannot sell for the same price they paid for it.
Final thoughts
It is impossible to know what will happen over the next 12 months and of course, the economy could start to bounce back, and the property market may simply adjust to more normal level of tractions.
The benefit to those who are looking for a quick sale is that property prices are high. Therefore, any below market valuation offered now is greater than it would have been a year ago, enabling sellers to move quickly and for the best price.
If you need to have sold your property by a certain date for any reason, feel free to contact us for a no-obligation chat about how we could help you achieve this.
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