At the time of writing (17/12/2020) the UK is still firmly in the grip of the ongoing covid-19 pandemic. The impact on the housing market has been notable, with the uncertain futures of many potential home buyers hanging in the balance. To help ease the situation the government introduced a ‘Stamp Duty Holiday’ in July that is destined to run until 31st of March 2021. Below we will explain what stamp duty is and how the temporary changes may affect those buying or selling houses.
What is Stamp Duty?
Stamp duty is not a new concept, and was in fact introduced as a land tax in the late 1600’s. The intention was – as it remains – to raise capital for the Treasury. Stamp duty is applicable to all properties – residential, commercial, industrial, and otherwise – that are sold in England and Northern Ireland. There is a threshold at which stamp duty becomes payable. Prior to the stamp duty holiday, residential properties selling for more than £125,000 would be subject to stamp duty, as would land or non-residential properties fetching in excess of £150,000.
The effects of the covid-19 crisis on the housing market were anticipated by the government who, in an effort to boost interest and encourage market movement, announced that stamp duty would apply only to properties selling for greater than £500,000 for the duration of the holiday. Above this value properties will be levied duty on a sliding percentage scale as described below.
It has been noted by some in the industry that the stamp duty holiday favours only those who are already in the property market. First-time buyers are unlikely to benefit from the scheme, and lenders are currently less likely to lend to this class of buyer unless they can provide a large percentage of the funds. However, it is believed that the stamp duty holiday has an effect on 90% of transactions in the housing market.
The Effects of the Stamp Duty Holiday
The pandemic had an almost immediate effect on the house market. With many people furloughed early in the year the market slowed considerably, with average prices falling in June.
The problems were not only financial, but also practical. With social distancing introduced and non-essential travel effectively banned, potential buyers could not attend viewings with an agent. Furthermore, sellers were not permitted to allow strangers into their homes during the lockdown stage. The alternative became online virtual walk-throughs. Agents have found these to be very useful, yet it remains the case that viewers want to see a property in the flesh before they commit to a purchase. This is always going to be the case as a real assessment of the property and the environment it exists within cannot be gained without a visit.
However, following the announcement of the stamp duty holiday, buyer enquiries rose dramatically. Right Move states that there have been 75% more enquiries than usually seen since July, with prices now above the levels they were in March 2020.
Online enquiries and visits have also increased greatly. Part of this will be down to people having time on their hands but much is also thought to be a result of the holiday, which has made moving home more attractive to many people – which was the aim of the stamp duty holiday.
The construction industry has also been boosted by the news, while the overall effect means that – according to government figures – the average stamp duty bill will be around £4500 lower than before, and 9 out of 10 buyers will not pay stamp duty on house purchases.
The Percentage Paid
While houses beneath the £500,000 value threshold will not incur stamp duty during the holiday, those above that are sold in England and Northern Ireland will be subject to a sliding scale of stamp duty rates.
If a property sells for more than £500,000 up to £600,000 it will be subject to a £5000 stamp duty fee. This rises by £5000 per £100,000 up to £900,000. A property just under £900,000 would, for example, be subject to a £20,000 fee.
Beyond £900,000 and up t0 £1 million, the fee will be £28,750. For each additional £100,000 threshold add £10,000.
That’s a simple an explanation as we can come up with without getting too deep into the figures, and we hope it gives a good idea of the new rates.
The savings under the new scheme are quite considerable. A £200,000 home would have previously been subject to a £1500 stamp duty charge and is now exempt, while the saving on a £1million home amounts to £15,000.
It’s easy to see, with some quite obviously large discounts, why people are looking at moving home right now where they may not have considered doing so under the standard stamp duty rules.
What the Future Holds
It is difficult to predict the future of the property market in the UK right now as while the stamp duty holiday is currently slated to run until the end of March there is little sign that the covid-19 crisis will be fully under control by that date. Restrictions are in place as this is written that prevent traditional viewings, although the period we are in now is among the busiest of the year in terms of enquiries and leads. What is expected is that there will be a boom in home buying once things return to as close to normal as possible.
This is because many people, having spent more than the usual proportion of a day in their house with the family, have come to the realization they need more space. Furthermore, those without gardens or outdoor spaces have recognized the advantages of having somewhere to use when there are few alternatives.
Will the stamp duty holiday be extended? As things stand it is impossible to say, so we advise that anyone considering buying or selling does so while the terms are in place and to keep an eye on government announcements in the future.