Summer Economic Update - Stamp Duty Holiday
As was widely expected, Chancellor Rishi Sunak announced changes to stamp duty in Wednesday’s summer economic update, to help cut the costs of anyone buying a home in addition to a range of measures designed to boost the UK economy following the Coronavirus/Covid-19 crisis.
The property market was effectively suspended on 26 March 2020 when the government issued guidance calling for people to delay moving during the lockdown period. Ahead of this announcement, several lenders withdrew their ‘more-risky’ mortgages, surveyors were prevented from visiting homes to conduct valuations, would-be buyers were unable to view homes and removal companies unable to operate. As a result of these restrictions, the number of homes being listed for sale and bought compared to usual fell dramatically. The property market was permitted to ‘reopen’ as of 13 May 2020, albeit with stringent social distancing measures in place. Although the residential market has seen a flurry of activity since restrictions were lifted, buyers remain cautious and price sensitive.
Data published this week by high street lender Halifax has shown that UK house prices fell for the fourth month in a row in June, the first time since 2010. This, along with pressure from The Royal Institution of Chartered Surveyors (RICS) and other property industry groups, has undoubtedly led the Chancellor to announce today’s stamp duty holiday to encourage nervous buyers.
What Is Stamp Duty?
Stamp Duty is a tax paid by property buyers, although it varies slighting across the UK. Until now, buyers in England and Northern Ireland have been subject to stamp duty ranging from 0% for properties costing less than £125,000, up to 12% for properties priced over £1.5 million, albeit with different rules for first-time buyers.
The Chancellor’s announcement today has raised the tax threshold to £500,000, four times the current level, exempting most homebuyers from paying any Stamp Duty from today until 31 March 2021.
Who Will Benefit From The Changes?
Buyers with the largest deposits looking to buy a home in more expensive areas will benefit most from this tax cut, although first-time buyers could also benefit depending on where they are looking to buy a house.
What Does This Mean For The UK Housing Market?
Today’s announcement is expected to boost housing activity, with some buyers eligible to save between £10,000 and £15,000 in Stamp Duty. Mortgage rates are near to record lows, which is also expected to support the housing market over the coming months.
What seems likely is the creation of an artificial market (as was witnessed in 2016) as the cut could encourage those planning to buy to accelerate their plans to take advantage of the tax break, leading to a potential property demand slump on expiry of the holiday.