How the end of the Stamp Duty Holiday may impact the UK Property Market
In response to the Covid-19 pandemic, in July 2020, the Government implemented a temporary Stamp Duty Land Tax (SDLT) relief which increased the starting threshold of residential SDLT from £125,000 to £500,000. Residential property transactions had fallen by up to 50% during the first national lockdown.
This stimulus to the property market was met with overwhelming support, however the relief scheme is due to end on 31 March 2021. This article looks at the potential impact on the UK residential property market.
At Coffin Mew, we are still encountering opportunities with potential clients whose sole focus seems to be to complete by 31 March, with many stating that unless the date can be achieved then their proposed move is unaffordable and they will not proceed.
When the Stamp Duty Holiday was announced last year, we noticed a significant influx of new enquiries in the following two-three months and we had to carefully manage our new business intake to ensure we could support all our clients with their purchase.
Like many law firms handling residential property transactions, we have been affected by the unprecedented volume of property transactions.
This has had a massive impact on the typical timeframe for legal completion. In the ‘pre-Stamp Duty Holiday’ days, the ‘average’ timescale for a residential property transaction was between two and three months.
Since the holiday was introduced, we have seen that timescale increase to an average of 4 to 6 months. The main reason for the longer timescales are simply down to the increased pressure on the various parts of the buying process. For example, getting a mortgage application and getting property searches is taking longer -simply due to increased demand. For example, prior to the Stamp Duty Holiday, we typically obtained local searches in 3 – 4 weeks; since the Holiday, the average timescale for us to obtain the searches is 8 to 12 weeks.
Kirsty Hill, who is a Mortgage and Protection Consultant at JXP Consultancy in Seaford confirms this by saying “there was a surge in house sales as people wanting to make the most of the Stamp Duty Holiday, whether first-time buyers, movers or landlords looking to invest, decided ‘now is the time’. This has resulted in a lack of housing stock available which in turn pushed up property prices. Nationwide’s December house price index reports, ‘annual house price growth rose to a six year high of 7.3% at the end of 2020’”.
The effects of the SDLT holiday have also impacted estate agents. Oliver Stanyard who is the Office Manager of the Seaford based estate agency Rowland Gorringe says “We are looking at a very busy February and March with completions. This is going to become very stressful and rushed the nearer we get to the SDLT holiday ending. I would imagine if some transactions do not complete before 31 March, they may have to reconsider the price they are paying or source the extra finances from elsewhere”.
Ian Peach who heads up the residential property team at Coffin Mew comments, “I have no doubt that we will see a degree of failed property transactions if the narrative we are experiencing from some clients, namely that a proposed move is unaffordable beyond 31 March 2021, manifests itself. I also believe there will be many matters where price renegotiation will take place in order to see the transaction complete.
There have been several calls to the Government to extend the SDLT relief scheme beyond 31 March. The SDLT holiday “has had a very positive impact for buyers and sellers for people who were looking into buying within the next year or so and it has prompted them to do this quicker as the saving is potentially a new bathroom or kitchen for the buyer in the new property, so it is a huge incentive” says Oliver.
Should the situation not change and the SDLT holiday does end on 31 March 2021, buyers should be prepared and factor in standard SDLT rates into the budgeting of their move as vendors may be reluctant to negotiate their asking prices. Buyers should also be conscious of a potential shortage of available properties.
However, a lot depends on the success of the vaccine rollout and a return to ‘normality’, if all goes well and we move into spring and summer (which is always the traditional time of the year where there is more activity in the market) then there will be a general feel-good factor and we won’t see the dramatic cliff-edge drop off in the market that some are predicting.
This prediction is also shared by mortgage consultant Kirsty; “we could start to see a slow in the market. There is a continued lack of housing stock available, perhaps due to potential movers waiting to see what happens with the stamp duty holiday. We have begun 2021 entering our third lockdown and for some this brings about job uncertainty. This in turn could result in price stability over the first quarter of 2021. However, changes in house prices are unknown.”
Kirsty adds, “Whilst many lenders reduced the number of products available in 2020, lenders have recently started to reduce rates and brought back more product availability, especially at higher loan to values, offering potential buyers more options than last seen prior to COVID-19. Buyers will need to be aware of increased costs as they need to factor in stamp duty cost.”
The ongoing pandemic coupled with the Stamp Duty relief has caused some people to assess their lifestyle by deciding to move from city surroundings to the suburbs. Lockdown is leading to many people re-evaluating the suitability of their current property and stimulating their desire to move somewhere different. Kirsty goes on to say; “in our area of the South East, we have seen an increase in people re-locating to be nearer to the coast.”
In Kirsty’s professional opinion, “buyers need to ensure they have a good estate agent, knowledgeable solicitor and mortgage advisor to support them through this ever-changing market. This is invaluable. JXP offer an initial consultation at no cost to all clients to provide help at the very start of this sometimes-complex process.”
Since the Government’s previous statement of not intending to extend the SDLT holiday beyond 31 March 2021, there has been over 130,000 signatures on the online parliamentary petition leading to the issue of extension being debated.
The takeaway advice for potential property buyers is to ensure that you are instructing independent industry experts such as Coffin Mew, and regardless of any potential extension to the SDLT relief or not, that your budget includes usual SDLT rates to avoid disappointment and delay.
If you would like to discuss the potential impact of Stamp Duty on your property purchase or sale, please get in touch with Sacha Bolourchi, Residential Property Solicitor at Coffin Mew’s Brighton Office. Email: email@example.com or mobile: 07384 469082.Tags: Stamp Duty