The stamp duty holiday deadline for properties valued at £500,000 or below is only a week away. How has this tax savings impacted the housing market and what is forecast for the coming months?
The temporary stamp duty holiday first came into effect on 8th July 2020 in England and Northern Ireland. This has meant homebuyers have paid no stamp duty on homes priced at £500,000 or below. The tax reduction, which will end 30th June 2021, has allowed buyers to save up to £15,000 on property purchases.
From 1st July to 30th September, the nil-rate threshold moves to £250,000. This provides a staggered return to previous stamp duty dates, which will come back into effect 1st October.
In the past few years, there have been calls to reform stamp duty. Recently, the government said it won’t permanently cut stamp duty. Additionally, there was a petition calling for stamp duty holiday to apply upon exchange of contracts instead of completion. It racked up nearly 14,000 signatures. However, the HM Treasury responded and closed the door on this.
The sector’s record-breaking performance
In recent months, there has been a home buying frenzy. The UK property market has been running red-hot, hitting record-breaking levels. Buyer demand has increased at significant levels. At the same time, supply hit an all-time low. This has caused house prices to increase substantially throughout the past 12 months.
The housing market is even on course to have its busiest year since the financial crisis, according to Zoopla. Additionally, Rightmove estimates 700,000 homes are currently going through the sales process. This is the highest number seen in the past decade. And this strong buying activity has led to a backlog of transactions, which could cause some buyers to miss out on stamp duty savings.
Millions of homebuyers making stamp duty savings
Despite delays and the large pipeline of property sales, many buyers have been able to make significant savings. More than half a million homebuyers in England are expected to benefit from the stamp duty holiday until 30th September. This equates to savings of £3.4bn, according to research by GetAgent.co.uk.
Looking at data from Land Registry, the estate agent comparison site estimates that 539,972 transactions are forecast to complete between 8th July 2020 and 30th June 2021. Of these transactions, 84% of transactions will have no stamp duty due, providing savings of £3.2bn.
An additional 138,764 house sales are forecast to complete between the tapering period when the stamp duty free threshold drops to £250,000. GetAgent further estimates that 45% of all transactions will remain exempt from stamp duty with an additional saving of £250m.
Colby Short, founder and CEO of GetAgent.co.uk, comments: “The current stamp duty holiday may have its critics and there’s no doubt that it’s been a factor in creating the current market bottleneck that has seen many subject to long delays during the transaction process.
“However, there’s also no doubt that a great deal of homebuyers have benefitted and many more will continue to do so right up until the end of September. Even with the reduction of the stamp duty free threshold from July onwards, nearly half of all transactions will continue to pay no stamp duty at all, so we can expect the market madness to continue until this secondary deadline, at the very least.”
What will happen after the stamp duty holiday?
There are signs that the property market is starting to cool down. However, a return to normality will still take some time, according to Rightmove. The economy is performing better than expected, and with mortgage interest rates still at low levels, robust buyer demand could remain in place even after the stamp duty holiday deadline.
Tim Bannister, Rightmove’s director of property data, says: “Some of that demand has now been met, and the phasing out of stamp duty reliefs has also taken away some of the urgency to move, though our high traffic and search data indicate that there is still strong buyer demand.
“However, higher prices combined with a lack of fresh choice coming to market are reducing some buyers’ ability or desire to move, and while we expect the market to remain robust, there are early signs of a slackening in the incredible pace of activity that we’ve seen over the last year. This super-charged activity cannot go on forever, but we expect the market to remain vigorous for at least the remainder of the year.”
