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17/12/20

By Nitesh Patel, Strategic Economist at Yorkshire Building Society

The Government’s bid to keep the housing market buoyant and help more people move home while the UK faces the biggest economic downturn for decades has been a success.

The data indicates the decision to freeze Stamp Duty on home purchases between £125,000 and £500,000 has supported the market during an otherwise economically dismal year. People have been feeling more positive about the housing market than might be expected, particularly given the twin uncertainties of the impact of Covid-19 and securing a trading deal with the EU when withdrawal agreement coming to an end.

Since the temporary stamp duty freeze was announced, the Building Society Association’s quarterly Property Tracker survey in September signalled a significant upswing in positive sentiment, with 37% of people agreeing it was a good time to buy property, up from 25% in June. The same month, just 5% of respondents agreed stamp duty was a barrier to buying a home, which marks the lowest level since the survey began.

There is also evidence the stamp duty freeze has driven demand, with housing market almost defying economic logic. The latest data shows mortgage approvals at their highest level since 2007, with 97,532 approvals in October, following large rises in August and September. This will be partly due to larger properties becoming more desirable as a people reassess their needs as they move to home-work and spending more time in their properties, but it does indicate the temporary reprieve on stamp duty is perhaps bringing forward buyers who may have seen it as too good an opportunity to miss.

As it stands, the stamp duty holiday is due to come to a dead halt on 31 March, 2021. This may not give enough time to complete transactions for buyers and sellers who have already agreed sales and have had mortgages approved.

This could cause headaches for home-buyers, who could have to find additional funds to pay the stamp duty charge, and could even cause some sales to fall through. Based on the average value of a home, buyers who are caught out by the cut-off date would face an average tax bill of £2,400. For buyers of homes worth £500,000, this sum would rises to £15,000.

There’s also evidence that the scramble to get purchases completed could push up prices. Since the stamp duty freeze was announced in July, house prices have risen by 3.2%, which is equivalent to an additional £7,685 on an average priced home. Home buyers may be willing to pay more to get a deal over the line quickly with the looming deadline fast approaching.

With this in mind, we support a three-month stamp duty taper – a period of grace which would allow any property sales which have been agreed and have secured a mortgage approval by 31 March until 30 June 2021 to complete their transaction with stamp duty reduction benefit. The grace period would exclude new mortgage commitments approved after 31 March 2021 and they would not be entitled to a reduction.

This is already likely to be a very busy period for lenders and other professionals involved in the house sale process. Social distancing measures are likely to still be in place, which will make it more challenging to move at speed. As well as helping buyers, we think this is a sensible approach which will ease the pressures likely to build on lenders and the rest of the residential property industry immediately before the deadline. This solution would be help to give everyone involved a better outcome and help more people to have a place to call home.

All information correct at time of publication.

W44-20