WILL THE STAMP DUTY HOLIDAY BE EXTENDED PAST OCTOBER?

The stamp duty threshold has currently been raised to ￡500,000 which will end in June 2021. A higher threshold has also been agreed until the end of September. This was likely in order to avoid the cliff-edge situation experienced by many homebuyers in the run-up to the original March deadline. The March deadline left many homebuyers at the mercy of conveyancers facing losses of up to ￡15,000 if completions were delayed.

What is the current Stamp Duty Holiday Threshold?

The current threshold for stamp duty means that the first ￡500,000 of the price of properties purchased in England will incur no tax. This level of relief is only available until the 30th of July. From the 1st of July until the 30th September 2021 there will still be a stamp duty holiday lite. So up until the 30th of September there will still be no stamp duty on the first ￡250,000 of properties purchased.

What are the normal (pre-holiday) rates of stamp duty?

Ordinarily stamp duty in England is applied to the purchase price of a property above the tax-free threshold of ￡125,000 or for first time buyers ￡300,000. Above this amount rates range from 2% to 12%.

Standard Rates

￡0 - ￡125,000 = 0%

￡125,001 to ￡250,000 = 2%

￡250,001 to ￡925,000 = 5%

￡925,001 to ￡1.5m = 10%

￡1.5 million + =12%

Example: Purchase price ￡130,000 (first ￡125,000 charged at 0%, next ￡5,000 charged at 2% so ￡100= total stamp duty of ￡100.

First Time Buyers - Normal Rates

For first time buyers the ordinary rates of stamp duty apply unless the property is under ￡500,000. In which case the first ￡300,000 is exempt with the 5% rate applying to the value between ￡300,000 and ￡500,000.

Investors - Normal Rates

If a property is a buy to let or a second home, then there is an additional 3% surcharge on top of the ordinary rates. So, for investment properties the rates look like this.

￡0 - ￡125,000 = 3%

￡125,001 to ￡250,000 = 5%

￡250,001 to ￡925,000 = 8%

￡925,001 to ￡1.5m = 13%

￡1.5 million + =15%

Overseas Investors - Normal Rates

Individuals who are not UK residents will pay an additional 2% to all the rates listed above.

So, foreign purchasers of a buy to let or a second home will pay the standard rates, plus the 3% surcharge AND the 2% foreign buyer surcharge.

So, for investment properties the rates look like this.

￡0 - ￡125,000 = 5%

￡125,001 to ￡250,000 = 7%

￡250,001 to ￡925,000 = 10%

￡925,001 to ￡1.5m = 15%

￡1.5 million+ =17%

What are the Stamp Duty Holiday Rates Until the 30th June 2021

Standard AND First Time Buyer - Rates until 30th June 2021

The previous differential treatment for first time buyers applied only to properties under ￡500,000. So as the stamp duty holiday means the first ￡500,000 of the purchase price of any property is tax exempt, during the stamp duty holiday the treatment of first-time buyers is the same as that of movers or those who have bought a home before. The rates are calculated as follows.

￡0 - ￡500,000 = 0%

￡500,000 to ￡925,000 = 5%

￡925,001 to ￡1.5m = 10%

￡1.5 million + =12%

Investors - Rates until 30th June 2021

Investors and people buying a second home, still benefit from the increased stamp duty threshold of ￡500,000. But as the 3% investor surcharge is additional to the standard stamp duty rate, even a stamp duty rate of 0% becomes 3% once the surcharge is added. So the rates are as follows.

￡0 - ￡500,000 = 3%

￡500,000 to ￡925,000 = 8%

￡925,001 to ￡1.5m = 13%

￡1.5 million + =15%

Overseas Investors Rates until 30th June 2021

Again, foreign investors still benefit from the increased ￡500,000 threshold below which there is a 0% stamp duty rate. However, the foreign buyer tax adds 2% in additional to stamp duty. And as investors, these buyers are subject to the additional 3% investor rate. This means even properties under ￡500,000 are subject to 5% stamp duty (0% + 2% + 3%), the rates work out as below.

￡0 - ￡500,000 = 5%

￡500,001 to ￡925,000 = 10%

￡925,001 to ￡1.5m = 15%

￡1.5 million+ =17%

What are the Stamp Duty Holiday Rates during the extended holiday from 1st July 2021 to 30th September 2021

Up until the 30th of September there will still be no stamp duty on the first ￡250,000 of properties purchased.

Standard Rates of stamp duty - 1st July 2021 to 30th September 2021

￡0 to ￡250,000 = 0%

￡250,001 to ￡925,000 = 5%

￡925,001 to ￡1.5m = 10%

￡1.5 million + =12%

First Time Buyer Stamp Duty Rates - 1st July 2021 to 30th September 2021

For first time buyers the ordinary rates of stamp duty apply unless the property is under ￡500,000. In which case the first ￡300,000 is exempt with the 5% rate applying to the value between ￡300,000 and ￡500,000.

So first time buyers who would normally get no relief on a property costing ￡500,001 or more, and anybody else not qualifying for first time buyer relief they will save a ￡2,500 in tax for the property value between ￡125,001 and ￡250,000.

Investor Stamp Duty Rates - 1st July 2021 to 30th September 2021

Again, while buy to lets or a second homes incur a 3% surcharge, they will still save up to ￡2,500 on the price of the property between ￡125,001 and ￡250,000. So the rates for this category of buyer are as follows.

￡0 to ￡250,000 = 3%

￡250,001 to ￡925,000 = 8%

￡925,001 to ￡1.5m = 13%

￡1.5 million + =15%

Overseas Buyers Stamp Duty Rates - 1st July 2021 to 30th September 2021

Similarly, Non-UK residents will pay the 2% foreign buyer surcharges and the 3% additional home charge but will save 2% in tax on the value between ￡125,001 and ￡250,000. The rates look like this.

￡0 to ￡250,000 = 5%

￡250,001 to ￡925,000 = 10%

￡925,001 to ￡1.5m = 15%

￡1.5 million+ =17%

Will the stamp duty holiday be extended again? And what will happen if not?

The stamp duty holiday was originally due to end in March 2021. The extension to September with a reduced amount is a good indicator that the government plans to end the stamp duty holiday on September 30th. Lenders such as the Hampshire Trust are no longer accepting applications from people needing to beat the Junedeadline and in a recent If there are no further extensions normal rates of stamp duty will be resumed.

What will happen to UK house prices after the stamp duty holiday ends?

Both Halifax and Nationwide reported that UK House Prices have risen by around 10% in the last year. However, the stamp duty is not the only factor currently affecting UK house prices.

Negative factors that may affect the housing market.

Furlough – The furlough scheme which saw the government pay the wages of many employees during the pandemic was also extended until the end of September. There were fears that the ending of the furlough scheme would signal the start of widespread job losses. Such an effect would have risked may defaults on mortgages and a potential increase of supply to the market thus weakening prices. However, according to the office of National Statistics, the scheme has been successful in allowing businesses to recover in order to protect jobs in the long-term. There are over a third less workers on furlough now than at the start of the year. Additionally most on furlough are under 25’s or older so less likely to hold a mortgage. However, with less job security and a larger unemployment figure than usual may lead to downward pressure on wages and could dissuade potential first time buyers or movers.

Pent up demand from sellers – during lockdown, people were unable to hold viewings. There are still signs that people are waiting for all restrictions to be lifted and administration of second jabs before welcoming strangers into their houses. If true an increase in supply could again negatively impact prices.

Positive factors affecting the housing market.

The low cost of borrowing – The Bank of England rate of 0.1% is encouraging buyers both from the UK and overseas. It’s an historic low in the UK. But US interest rates are 2.5 times higher and the cost of borrowing in China, Russia, Brazil and South Africa are all over 30 times as high. Added to the currency instability in some of these nations these low interest rates also affect demand for UK properties.

The government’s deposit guarantee scheme / 5% mortgages – To reduce the chance of the stamp duty ending overly affecting the market the government simultaneously launched a deposit guarantee scheme. The new scheme is available to everyone buying homes costing below ￡600,000, where they are not investment properties or second homes. The government guarantees to compensate lenders for up to 15% of the property value where a borrower defaults, meaning both first time buyers and movers will be able to use just 5% deposits.

Pent up buyer demand – A recent survey from the UK’s largest property advertiser showed that in a survey of hundreds of individuals currently completing purchases, less than 30% were doing so because of the stamp duty holiday. The most common reasons were a desire to get a larger home, be closer to the countryside or the coast, or getting a property with a garden. Many of these people hardest hit by the covid restrictions may have been waiting for restrictions to fully look in order to find a new home.

So, will there be a drop in prices?

The latest figures from the Office for National Statistics (ONS) show that price growth slowed in April, however this was represented by year on year growth dropping from 9.9% in the year to March 2021 when compared to 8.9% in the year to April 2021. Additionally, this was not universal across the country with growth in some areas exceeding 15% and slowing in London to 3.3%. So, as above pent up demand for properties with more space and access to open spaces could be sustaining growth in lower priced areas outside of London accounting for the small slowing in values. Other research has identified only 4% of buyers would not continue if they missed the stamp duty holiday, showing that while the stamp duty ending may have a dampening effect, it is unlikely to result in falling prices but more likely to result in slowed growth. Knight Frank believes a worst case scenario would be a modest rise of 1% in 2022 with growth returning to normal thereafter.

Should the End of the Stamp Duty Holiday Affect my Decision to Purchase?

Ultimately, these are short term impacts and property investments are often best made with a long-term view. The low cost of borrowing and the fuelling of demand from first time buyers and cheaper borrowing are likely to assist the stamp duty extension in avoiding a cliff edge situation. But there is limited consensus among experts and there is also evidence that growth is slowing…. but again, these are short term factors. The systemic undersupply of the housing in England and Wales has not been helped by the suspension of construction projects by over a year, and if anything, it has exacerbated the problem. This is a long-term factor that has not been resolved by successive governments. After such a long period at home, the pandemic has likely created short term demand for higher quality homes that will sustain the market. And while this has short term significance, it may also have much longer-term implications. Many believe that worker habits have changed forever, and that the demand for larger apartments with space for an office or outside space will fuel long term supply shortages for certain asset classes, and geographic markets such as those outside of London or Manchester. Whether a home is likely to be in demand for the long term, or whether an investment property has good fundamentals and strong income prospects are still the factors which deserve to carry the most weight. Properties meeting these criteria are unlikely to be a bad investment in the long term and short-term factors will undoubtedly be viewed as little more than a backdrop over the course of ownership. Any decisions to purchase should be made while taking a balanced view of all factors with any short term tax incentives clearly worth consideration, but not given an overly prominent position.