What will happen to stamp duty?

As the Government’s Budget on the 3rd March nears, it’s looking unlikely the stamp duty holiday will be extended for a significant period of time, but after a year of uncertainty for the UK, it’s difficult to predict what will happen in the next few months. Government had said they would not be extending the holiday, but are now considering an extension of 3 months until June, to allow those currently purchasing to complete on their sale. However, if they change their mind it wouldn’t be the first U-turn we’ve seen in recent months…

The implications of not extending the stamp duty holiday are concerning for a lot of people, not least those currently caught in the bottleneck of house sales who would be unlikely to complete before the end of March deadline, with an estimated 70,000 sales agreed in 2020 not expected to make it through before this date. If the holiday did end and these purchases hadn’t gone through in time, there may well be some sales falling through. It also seems a number of people are holding out on sales and purchases through the uncertainty, waiting to see what happens, and they will likely have an impact on the housing market later this year as they decide whether or not to move forward with their purchases.

House prices look to be starting to fall in some areas and, if predictions come true, when stamp duty ends they’ll likely fall more rapidly. This reduction in price is to be expected as the market stabilises following several months of artificial stimulus from the stamp duty holiday causing record highs in property prices across the country. We’ve said previously, however, that the boom in 2020 looks to have been heavily driven by second and multiple home owners and the higher end of the market, where property continues to be seen as a good long-term investment project and whose jobs are less likely to have been hit by lockdown restrictions and redundancies. 

The accessibility of mortgage products has caused some issues for buyers in the past year but, whilst lenders are likely to remain cautious, we would anticipate some loosening of lending criteria as the implications of furlough ending and the vaccine roll out become more apparent and some certainty returns to the housing market with the risk to lenders becoming increasingly more stable and transparent.

The potential of negative interest rates in the coming months may also stimulate the housing market, with traditional savings accounts of little value, banks are encouraging lending through mortgage products, and those with surplus capital seeing property as a solid investment.

Demand continues to outstrip supply due to a long term skills and material shortage in the construction industry, compounded further by Brexit and fluctuations in demand created by changing living patterns during the pandemic, so whilst we face more uncertainty ahead, investors, buyers and those working in the property industry can take some comfort in the historic performance of the housing market and there are indeed scenarios to feel cautiously optimistic about.

Stamp duty explained

Stamp duty rates with the holiday until 31st March 2021

Add 3% if this is not your sole property.

Up to £500,0000%
The next £425,000 (the portion from £500,001 to £925,000)5%
The next £575,000 (the portion from £925,001 to £1.5 million)10%
The remaining amount (the portion above £1.5 million)12%

Stamp duty rates from 1st April (potentially 1st July) 2021

Add 3% if this is not your sole property

If you’re a first time buyer, you pay no stamp duty up to £300,000.

Up to £125,0000%
The next £125,000 (the portion from £125,001 to £250,000)2%
The next £675,000 (the portion from £250,001 to £925,000)5%
The next £575,000 (the portion from £925,001 to £1.5 million)10%
The remaining amount (the portion above £1.5 million)12%

So, for example…

If you buy a house for £625,000 in March 2021 you will pay £6,250 in stamp duty, calculated as follows:

0% on the first £500,000 = £0

5% on the remaining £125,000 = £6,250

If you buy a house for £625,000 in April (potentially July) 2021 you will pay £21,250 in stamp duty, calculated as follows:

0% on the first £125,000 = £0

2% on the next £125,000 = £2,500

5% on the remaining £375,000 = £18,750

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