End of stamp duty holiday could trigger drop in house prices as 100,000 property deals hang by a thread
THE end of the stamp duty holiday next month could trigger a drop in house prices, experts predict.
It comes as property portal Rightmove warns 100,000 deals could collapse if the tax break isn't extended.
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The Chancellor slashed the land duty tax on the first £500,000 of a property's value back in July to kick start the housing market following the first coronavirus lockdown.
Rishi Sunak said that the break will save buyers around £4,500 when they move house, although the saving could be more depending on the value of the property.
But in reality, the duty holiday actually caused a mini-boom and pushed up house prices by 8.5% on average, according to latest figures from the Office for National Statistics.
Prices have already started fall since the start of the year, as the stamp duty break approaches its final months before it ends on March 31 2021.
What is stamp duty?
STAMP duty land tax (SDLT) is a lump sum payment anyone buying a property or piece of land over a certain price has to pay.
Up until July 8, most house-buyers in England and Northern Ireland had to pay stamp duty on properties over £125,000.
This was temporarily increased to £500,000 until March 31, 2021 in the government's mini-Budget in July 2020.
The rate a buyer has to fork out varies depending on the price and type of property.
Rates are different depending on whether it is residential, a second home or buy-to-let, or whether you're a first-time buyer.
The usual system in England for residential properties means:
- First-time buyers pay nothing on properties below £300,000 (and relief available on properties of up to £500,000)
- You pay nothing if the property costs below £125,000
- You pay 2% if it is worth between £125,001 and £250,000
- You pay 5% if between £250,001 and up to £925,000
- You pay 10% if it is between £925,001 and £1.5million
- You pay 12% on anything over £1.5million
For second homes or buy to let properties:
- 3% on purchases up to 125,000
- 5% on purchases between £125,001 and £250,000
- 8% on purchases above £250,001 and £925,000
- 13% on purchases above £925,001 and £1.5 million
- 15% on purchases above £1.5 million
Stamp duty rates are different in and .
In January, the cost of an average UK house dropped by 0.3% compared to December, to £251,968, according to Halifax.
The slow down follows a stark warning from mortgage brokers Trussle that around half of property deals agreed in November won't make the deadline.
House prices could fall
Halifax predicts property prices will fall by between 2% and 5% this year, while Zoopla expects valuations to peak by 5% in February before slowing to 1% at the end of 2021.
Online property platform Twindig reckons prices will drop by around 1%, or £2,500 on average, but they'll still be higher than they were before the holiday.
"House prices have increased because more people are looking to buy a home than sell one," explained Twindig boss Anthony Codling.
"This could change once the stamp duty holiday ends as buyers no longer need to rush and can afford to take their time."
"Once the stamp duty holiday ends we expect the housing market to be quiet until the UK economy is fully re-opened," he added.
Meanwhile, Gatehouse Bank believes the housing market won't slow down once it ends as buyers look for more room following the recent lockdowns.
Paul Stockwell, chief commercial officer of , said: "We don’t expect demand to abate when the stamp duty holiday does end, and, whilst this may hamper growth slightly, we expect to see the market continue to rise with demand this year too."
Calls for an extension
Industry bodies have been calling on the Chancellor to extend the stamp duty break to stop thousands of house sales from falling through.
Rightmove warns there's an estimated 412,000 sales that were agreed last year still currently in the legal process putting them at risk of missing the deadline.
Delays caused by a backlog of buyers and many lenders' staff adjusting to working from home, has left many struggling to get the deals over the line.
But Twindig estimates the break costs the taxman around £1.4billion in the second half of last year alone.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa - It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.
Help to Buy equity loan - The Government will lend you up to 20% of the home's value - or 40% in London - after you've put down a 5% deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa - This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.
Shared ownership - Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you're restricted to specific ones.
"First dibs" in London - London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative - A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20% discount by 2020. To receive updates on the progress of these homes you can register your interest on the website.
Yesterday, The Sun reported Mr Sunak could extend the stamp duty holiday by six weeks in a boost for home buyers.
But the Chancellor is said to oppose a longer, six-month extension amid concerns over Britain’s growing deficit.
Rightmove's property expert Tim Banniester said a six-week extension "should give the majority of sales from last year the chance to complete in time."
However, Trussle's head of mortgage Miles Robinson warned the extension wouldn't be long enough for buyers just starting on the process to cash in.
He said: "Whilst their mortgages might be approved before the deadline, the current wait time for other necessary processes, such as surveys, valuations and local searches are likely to take longer."
"As the wider economy continues to recover from the coronavirus pandemic, we’d urge the Government to consider granting a longer extension or adopting a tapered approach to ending the stamp duty holiday," he added.
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Mr Sunak isn't expected to announce a decision on an extension until the Spring Budget in the first week of March.
Property prices fell for the first time in eight years by 0.1% in July 2020 following the pandemic lockdown.
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First-time buyers are already exempt from stamp duty on the first £300,000 of a property value.