If you have questions about how the extension of the Stamp Duty Holiday will affect the purchase of your new home the answers in this feature might help.
Kane Caulfield, managing director of View Homes, estate agents in Uckfield, takes a look at the latest position here.
What is a Stamp Duty Holiday?
The Government invited us to take a tax holiday by raising the threshold for paying stamp duty from £125,000 to £500,000 last summer, saving buyers up to £15,000 in tax.
Why did they do that?
To incentivise buyers into the housing market following its closure through the first months of last year’s lockdown. The aim was to prevent a collapse in prices and stagnation in the market, as well as to help buyers who may have been financially affected by the pandemic.
Did it work?
Yes! Possibly too well, some might argue. Parts of the market may have become rather overheated, with significant year-on-year price increases.
Doesn’t it end on March 31?
Not anymore. Chancellor Rishi Sunak confirmed an extension until June 30. The rationale for this is less about attracting in new buyers, more about protecting existing agreed sales caught up in a log jam of conveyancing, mortgage approval and local authority searches (Wealden turnaround has been running at 35 working days). With these delays, many transactions were at risk of not completing by March 31, resulting in the collapse of chains of movers who had not budgeted for the additional tax.
So, is there still time to beat the June 30 deadline?
Sales already in the system should now have time to complete. However, with the average time from offer accepted to completion currently upwards of 20 weeks, buyers now entering the market should budget for not meeting the new deadline. If there is no chain, then it may still be possible.
What about after June 30?
The threshold will lower from £500,000 to £250,000, before reverting to the usual £125,00 on October 1. This means a maximum tax saving of £2,500 on July 1 as opposed to £15,000 on June 30.
Isn’t that still a big cliff edge?
Yes! It is a potential £12,500 difference between completing your purchase on 30 June or July 1. Although it softens the blow a little, the aim of announcing the intermediate £250,000 threshold is probably to signal there will be no further extensions of the £500,000 threshold – the Chancellor’s way of saying don’t bother sending any more petitions asking for one! Of course, £2,500 is not to be sniffed at, and it should help to support buyers struggling to muster deposits.
Yes, deposits! One effect of the pandemic has been the disappearance of nearly all 95% mortgage loans, leaving buyers to stump up a minimum of 10-15% of the purchase price. Loans at 95% are to some extent the oil that greases the housing market. Without their availability, younger buyers, already disproportionately financially affected by the pandemic, struggle to raise the required deposit, and the market begins to grind to a halt. With this in mind, the Government have announced a scheme to guarantee mortgages with 5% deposits until the end of December 2022.
Last question: Is now the right time to put my property on the market?
You’re asking an estate agent! Of course it is! The honest answer is that Government initiatives to influence the housing market are just one element in a complex ecosystem. If you need or want to buy, sell or move, it is best to make a decision about when the right time is based on more than just a tax giveaway. To put this in perspective, one effect of the announcement to raise the Stamp Duty threshold last summer was that a number of sellers immediately tried to renegotiate a higher price on already agreed sales, on the basis that their buyer now had up to £15,000 more to spend! The moral of the story is that it is a good time to buy, sell or move if you were planning to do so anyway.