In a bid to revive the property market hard hit by the coronavirus pandemic, Chancellor to the Exchequer Rishi Sunak announced a stamp duty holiday that could see homebuyers save thousands of pounds on home purchases. The measure, which effectively suspended stamp duty tax on all purchases up to £500,000, was made with the hope of providing a much-needed boost to England and Northern Ireland’s housing markets.
According to property experts, resorting to stamp duty holidays is a tried-and-tested way of reviving activity, especially in tough times. The last time the UK implemented a similar holiday was in 2008 when the global economy was reeling from the financial crisis. While the government could lose up to £1.3 billion in revenue, it’s an acceptable trade-off if it boosts confidence in the property industry.
A few months into the stamp duty holiday, early indications are that the measure has led to increased interest. According to The RICS UK Residential Market Survey, more than 70 percent of property surveyors witnessed an increase in new buyer enquiries, while close to 60 percent received more instructions. This rise has been underlined by an increase in new listing and sales that could signal a positive trend for the year.
For buyers, sellers and other stakeholders, the spike in property activity should provide reassurance that the market is on its way to recovery. Zuneth Sattar, a businessman with investments in residential and commercial property, is among many who monitor the industry’s growth for both personal and business reasons.
In addition to RICS, a home-moving service provider also noted the jump in housing demand and went on to forecast house price growth to reach 11.4 percent in October 2020. The company has observed a significant surge in activity that’s been spurred by, among other factors, the stamp duty holiday. While the provider expects a short-term increase in prices, it also attributes the high demand to the effect of the COVID-19 lockdown measures. Primarily, with people spending more time at home, many are looking for homes with extra spaces to cater for gardens or offices. With stamp duty suspended, many buyers have gained the incentive to seek quotes and bring forward their homeownership dreams.
Still, the optimism regarding the spike in housing demand has to take into consideration the bigger economic picture, with the UK economy in a recession and unemployment fears looming when a furlough scheme ends later in October. Additionally, mortgage repayment holidays will likely come to an end, putting the pressure on homeowners who took up the grace period. Combined, these factors might erode demand in the winter season.
Stamp Duty Explained
Homebuyers in England and Northern Ireland pay stamp duty for purchases valued at £125,000 or more, with the charge based on a tiered system. For example, a purchase made for a home valued at £220,000 will incur a tax rate of two percent (the rate charged for the £125,000 to £250,000 tier), while a purchase of £980,000 would incur a ten percent tax charge (the rate charged for the £925,000 to £1.5 million tier).
However, with the stamp duty holiday that runs up to March 2021, buyers will pay stamp duty on purchases above £500,000. The holiday is particularly aimed at individuals buying their first property.
Buyers are more likely to benefit from this tax holiday since they typically are responsible for paying the stamp duty. However, homeowners could find a way to benefit as well, since knowing the buyer won’t have to pay the tax might lead some sellers to keep their prices high. Ultimately, masterful negotiating between the two parties may determine who ends up benefiting the most, or both parties could agree to split the savings down the middle.