Is the stamp duty holiday inflating the UK property market boom?

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The UK property market is booming right now as we enter intosummer 2021. House prices have increased on average by 15% compared with thistime last year, and it seems that all the uncertainty surrounding the economyhas not exactly gone away, but is now on the back burner when it comes to buyingproperty.

There are several reasons for this, according to estateagents and industry experts, but also some trends that are not as easy tomeasure but are having an impact on house sales.

First up let’s take a look at the figures.

Prices are rising across the country.

According to the Nationwide building society , house prices in April 2021 rose at the fastest rate since2004 and this trend looks to continue into the summer. House prices in Aprilwere on average 2.1% higher than those which were sold in March making theaverage UK home £238,831, which is a record high.

A major factor, driving this rush to buy can be attributed inpart to the Stamp Duty Holiday bought in by Chancellor Rishi Sunak.

Stamp Duty

Stamp Duty land Tax (SDLT) is tax which is paid to the governmenton all residential properties. The tax is paid by the buyer and it can addthousands to the cost of buying a home.

To re energise the housing market the government granted aholiday on stamp duty meaning that all property up to £500, 000 was now free ofstamp duty tax.

Stamp Duty holiday

The stamp duty holiday was introduced in July 2020 just asthe UK was emerging from the first lockdown and it was designed to end in March2021.

Back then in July2020, it would have been impossible to predict that the pandemic and thesubsequent lockdowns would still be in force , a year later , so it wasimagined that this stamp duty holiday would be operating in a normal market andwould encourage more people to take advantage of lower costs of buying aproperty.

This did happen last year and many buyers did take advantageof the stamp duty holiday but with so many people facing economic hardship, joblosses and out on furlough from the work place, the housing market was down.

Many would be buyers were not in a position to buy or movehome last year because of economic uncertainty. This kept house prices down asa result.

Now in 2021, with light of the Coronavirus at the end of thetunnel, many buyers are now aiming to get in, before the end of the stamp dutyholiday.

This trend started in March and has risen through April ,especially as we now have an extended end date for the stamp duty holiday.

Stamp Duty Holiday Extended

Although the holiday on stamp duty was due to end in March ithas since been extended until June in order to prevent the house sales that hadfailed to be completed by the March deadline from falling through.

This would potentially have had a disastrous impact onthousands of house sales often caught up in buying chains, and in some casesbought to a halt if one of the buyers could not raise the added capital to paystamp duty, around £15000 on the price of an average property.

The Stamp Duty Holiday has now been extended to June 30thso this is causing a rush as buyers attempt to complete before the new Stamp Duty Deadline.

Let’s check out the stamp duty rates and see how they willaffect you as a buyer.

Rates of stamp duty between July 2020 – June 2021

· In this period between 8thJuly 2020 to 30th June 2021all properties up to £500,000 are freeof stamp duty tax.

· The stamp duty charged on moreexpensive properties is as follows:

· £500,001 to £925,000 the SDLT rateis charged at 5% of the purchase price.

· £925,001 to £1.5 million the SDLTrate is set at 10%

· Properties above £1.5 million needto pay an added 12% on top of the purchase price.

Rates of stamp duty from July 1st 2021 to 30thSeptember 2021

In this period properties up to £250,000 are free from stampduty and properties costing from £250,001 to £925,000 are charged at 5%.

The higher categories remain unchanged.

Rates of stamp duty from 1st October 2021

· Properties up to £125,000 are free

· Properties that cost from £125,001to £250,000 now have to pay 2% Stamp Duty Land Tax

· Properties that cost from £250,001to £925,000 will be charged 5% stamp duty land tax.

· The two highest categories remainunchanged.

So is the stamp duty holiday driving the property boom?

The stamp duty holiday is encouraging people to buy beforethe rates go up in July and according to the chancellor, the stamp duty holidaywill not be further extended as the government needs to raise funds to pay forthe COVID pandemic. This means there isa rush to buy now, rather than leaving until later.

However this is not the only reason. The market is also being boosted by low costborrowing.

Low cost mortgages

The government is encouraging lenders to provide 95% mortgagesto first time buyers and have backed this with a guarantee that lasts until theend of 2022. So this is making house buying far more affordable to a widergroup of buyers than it was pre pandemic. There are some great deals out thereon mortgages for all buyers (whether first time or otherwise) and this ismaking home ownership far more affordable than it has been in recent years.

Other factors driving the housing boom

Throughout the pandemic many people have re appraised theirstyle of living and with so many people finding that working from home is more convenientthan going to work in an office, many professionals are now moving out of thecity to cheaper and more rural locations.

There is no real reason , after all, why anyone should beconvenient for the office, if it is not necessary to even be there and estateagents have reported an exodus of people moving into rural areas .

Working on line is causing a housing boom in some rural areas.Properties in the North of England for example which are far cheaper and offerfar more space than their southern counterparts are seeing a surge of interest.And the fact that 99% of these are priced under £250,000 means that savvybuyers will still be able to take advantage of the stamp duty holiday until the30th of September 2021 if they act now.

According to Right Move there were a record breaking 9million visitors to their site on March 3rd 2021 and overall thesite traffic is up 82% on the same time last year.

Housing stock is not sufficient to meet demand

Another factor driving the rise of property prices is thefact that demand for housing is very high yet this hasn’t been met with anincrease in available properties. According to industry experts, the housingmarket is experiencing a growing imbalance of supply and demand and there is noreason why housing supply should increase any time soon.

With such a high demand for available properties, many estateagents are filtering out would be buyers based on criteria such as whether theycan act quickly, whether or not they have already sold and whether they havetheir mortgage requirements already in place.

Any potential buyers who may seem like they could betimewasters will find it difficult to even view a property if it is in a soughtafter, popular area.

So what is the future for the housing market after the stampduty holiday?

Industry professionals are unwilling to make predictions. Althoughmost agree that the housing market will slow once we reach the end of the stampduty holiday, it is highly likely that the summer will be extremely busy.

Now that the COVID restrictions are easing and it becomeseasier to physically view properties, the property rush will probably continuethroughout summer, before slowing in September.

However, with a more optimistic economic future predictedgenerally, it is unlikely that this will have a major effect upon house prices.Right Move predicts that there will be a small slump in housing prices once thestamp duty holiday comes to an end. Other major property organisations believethat the housing market will slow but that prices will still rise at a low ratesuch as at between 1% and 4%.

In conclusion…

If you are considering buying a property this year, it makessense to act now because if you act fast you may be able to avoid paying stampduty. So check out your estate agent’s track record and see if they act fastand get your mortgage agreement in principle before you make any offers on aproperty.

That said it is important to consider your requirementscarefully before you buy.

Rushing into buying a property in order to save £15,000 maysee you paying more upfront for your house now, than it would later. After all interest rates are so low right now,if you do need to add this sum to your monthly repayments, it won’t make muchdifference to your monthly outgoings anyway.