The stamp duty holiday unveiled by Chancellor Rishi Sunak in July has been credited with fuelling a mini-boom in the property market. According to recent figures released by HM Revenue and Customs, a total of 105,630 residential transactions took place in October, making it the busiest October in at least a decade. £1.9bn was raised from stamp duty in the third quarter of the year alone.
While the stamp duty holiday has been a widely discussed topic for the last few months, there is much speculation about the long-term impact that the holiday will have on the UK’s housing market.
The government has largely ignored pleas from the industry to extend the stamp duty holiday, which is currently set to end on 31 March 2021. Many experts predict that if the stamp duty holiday is not extended, the UK’s surging housing market could go into sharp reverse next year, risking a damaging downturn.
Some developers have even taken this matter into their own hands, and offered to ‘extend the stamp duty holiday’ by covering the costs up until October themselves.
The end of the holiday next March also coincides with the end of the furlough programme and several other financial support schemes. This will bring about a cliff edge in demand, at the exact moment we expect employment and incomes to be suffering most.
David Hannah, Founder and Principal Consultant of Cornerstone Tax, said: “There has been much speculation on the impact that the boom in house sales will have on the UK’s property market overall, in both the long and the short-term. Already, we are seeing that the stamp duty holiday is effectively costing buyers more than they are saving, as the rise in house prices far outweighs the amount most buyers could save from the stamp duty holiday.
“In reality, we will need to wait at least 12 months before we can assess the full impact that this holiday, and the subsequent boom in sales, have had on the UK property market overall. It is likely that the impact will be far less damaging than the ‘doom-and-gloom’ predictions we are currently hearing.
“The largest impact will be felt on buyers purchasing mid-tier properties, who are currently fuelling the rise in house prices. Property sales at the lower and higher ends of the market have essentially stagnated. As the majority of the population have spent a large portion of their time indoors during lockdowns this year, low-tier properties with less space have become unappealing. Higher end properties, usually popular with international buyers, have been abandoned.
“Eventually, if the lower and higher ends of the housing market continue to stagnate, mid-tier buyers may find that their demand far outweighs the supply of affordable housing. On the flip side, developers catering to this market, may eventually find themselves competing for a decreasing pool of mid-tier buyers.
“While the holiday enabled the industry to avoid the most catastrophic consequences, it was never a long-term solution. Throughout other economic crises, stamp duty changes or relief have historically done very little to get the market moving again, and there is no reason why it would help this time around either. It has been and still is a poor tool for managing market behaviour. With low-deposit mortgages almost disappearing altogether, people are having to assess their options.
“The government needs to do more to help get people get on the property ladder; government-backed purchase mortgage guarantees for borrowers would be a great way to reinstall confidence in the lending market. If the term of these guarantees were for five years, for example, the inflation of the housing market during the medium term would wipe off any negative equity on those properties. This would give the market some security again, help buyers, and get the market moving again.”
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