The stamp duty holiday ended on 30 July 2021. What does this mean for the UK property market?
What is the Stamp Duty Holiday?
Stamp Duty Land Tax (SDLT) is a tax on properties over a specific price. In normal circumstances, the threshold for SDLT is £125,000 or, for first-time buyers, £300,000.
The stamp duty holiday, introduced in 2020, allowed relief on properties purchased for less than £500,000.
However, as of 30 July 2021, stamp duty will return in stages. From 1 July to 30 September, duty is payable on properties over £250,000. As of October, it returns to the pre-holiday rate of £125,000.
Why was the Stamp Duty Holiday Introduced?
With the UK property market and broader economy affected by the COVID-19 pandemic and lockdowns, the government introduced the stamp duty holiday. The idea behind the scheme was to incentivise people to buy, sell, or renovate during a time of economic uncertainty.
By powering demand in the UK property market, Rishi Sunak, the Chancellor of the Exchequer, believed employment and extra jobs could reboot the economy. However, many feel the policy outstayed it usefulness and blame it for distorting the market and raising property prices.
Advantages and Disadvantages of the Stamp Duty Holiday
Research by property website Rightmove shows that 1.3 million Britons took advantage of the stamp duty relief. However, this increased housing prices by £16,000 across the country and £8,000 in London.
At the time of its introduction, the stamp duty holiday provided relief to buyers in a stalled economy. It was a welcome boost for the market. However, it led many buyers to over-extend far beyond their original budgets. Fifty-six percent of homebuyers aged between 25 and 34 say they rushed in to take advantage of the window and went over budget. In London, this translated to an average of £27,000.
How Will the UK Property Market Be Affected Now The Stamp Duty Holiday is Over?
On the surface, it might seem like removing the stamp duty holiday will reduce demand. However, the feeling across the industry is that the market will continue to grow.
Favourable interest rates combined with the stamp duty holiday presented a unique opportunity that many took advantage of. However, another big factor was the economic uncertainty caused by lengthy Brexit negotiations. A lack of certainty about the economy led to pent up demand that exploded once the country had left the EU. As the stamp duty holiday was tapered off, property demand has not been reduced, which suggests there is a good deal of organic demand already.
Is the End of the Stamp Duty Holiday Better for Buyers or Investors?
The stamp duty holiday motivated buyers at several price levels to move quickly. Significantly, many 2nd or 3rd-time buyers used the opportunity to upsize their family home. Additionally, the stamp duty holiday incentivised investors to buy flats again — although they faced a 3% surcharge.
As of 1 October, stamp duty relief will still be available for first-time buyers who purchase a house under £300,000. In theory, this gives first-time buyers an advantage over buy-to-let investors who will need to pay higher closing costs to compete.
For more insight into the latest property tax changes, visit our dedicated property tax forum here.