Is history repeating itself? Five years on from the stamp duty surcharge

Do you remember exactly what you were doing five years ago? Me neither.

While there is currently significant focus on Chancellor Rishi Sunak’s announcement that the stamp duty holiday has been extended, another stamp duty milestone is approaching that nobody’s talking about.

What’s happened since 2016?

On 1 April, it will be five-years since the 3% stamp duty surcharge on second homes and buy-to-let properties was introduced.

The change led to a spike in transactions during the first quarter of 2016, as people brought forward purchases in a bid to complete before the new tax was introduced.

In March 2016 alone, 171,370 properties changed hands, a massive 87% increase on the same month of the previous year.

Any buyers who took out a five-year fixed rate mortgage during this period will now be looking to remortgage, making it a good time to reconnect with former clients.

What’s happened in the housing market since then?

The good news for your clients is that house prices have enjoyed significant growth since April 2016, meaning they are likely to have more equity in their property when they come to remortgage.

In April 2016, the average home in England cost ￡223,784, compared with ￡269,150 now – a 20.3% increase, which should put many people into a lower LTV tier compared with when they first took out their mortgage.

But the gains have not been evenly distributed across England. The East Midlands has seen the strongest price growth, with property values rising by 28%, followed by the West Midlands and North West both at 25%, and the South West at 24%.

By contrast, house prices have risen by just 7.6% in London and 14.5% in the South East during the same period.

The headline figures also do not reflect price changes to different property types, with the value of terraced houses and flats, which tend to be popular with buy-to-let investors rising by an average of only 4.9% 11.6% respectively since April 2016.

Second home purchasers, who are more likely to go for detached properties, are likely to have fared better, with gains averaging 24% during the period.

What about the mortgage market?

The mortgage market has undergone considerable changes since your clients first took out their mortgage.

Despite lenders responding to the Covid-19 pandemic by pulling products from the residential mortgage market, product availability has almost doubled for the buy-to-let sector, rising from 1,350 in April 2016 to more than 2,300 products now.

Within this total, there has also been a rise in the availability of high LTV products, with 24 products available at 85% LTV, up from just six five years earlier, and 152 at 80% LTV, compared with 117 in 2016.

While the increase is obviously good news, clients are likely to need help navigating a more crowded marketplace.

Meanwhile, although overall mortgage choice has remained broadly static for people who purchased a second home, there has been a steep fall in the number of different products available in the high LTV range.

There are currently just five 95% LTV residential products*, all of which have conditions, compared with 264 in 2016, while choice in the 90% LTV band has fallen from 577 different products to 347 now.

These changes mean clients with second homes on a high LTV mortgage are likely to be particularly in need of advice.

On a brighter note, average rates for a five-year fixed rate mortgage have fallen by around 0.5% for both buy-to-let and residential products since 2016, so it should be possible to help clients find a cheaper deal when they remortgage.

Why is this significant?

Don’t miss the boat, now is the time to get back in touch with existing clients.

The stamp duty surcharge led to a boom in property purchases in the run up to its introduction. With a lot of business on the table, and significant changes taking place in the mortgage market since these clients first took out their loans, it’s time to get back in touch to guide them through the remortgage process.

While closing purchase business is likely to remain your priority in the coming months, I’d advise on adopting an 80/20 strategy to help ensure you have solid pipeline once the stamp duty holiday is over. Spend time planning, focus on retention, and work the phones to get back in touch with clients.

*accurate at time of research and writing.