How will the end of Stamp Duty Holiday affect property prices?

Anyone in the market for a property lately has been basking in the glory of the Stamp Duty Holiday – the incentive introduced by Rishi Sunak back in March to stabilise the housing market during the COVID pandemic.

An incentive that on the face of it, seems to have done remarkably well, especially considering the critical backlash it received when it was first announced back in July of 2020.

Nationwide are reporting that house prices have risen over 7% last year, hitting a 6 year high. house repayments approvals haven’t fared too bad either, all despite lockdown being labelled a slightly less conventional form of economic Armageddon.

So, you could assume that to some extent the housing market has curbed this COVID blow, although that doesn’t necessarily mean it’ll get off Scot free.

You see, while the market has survived the initial spurt of uncertainty surround coronavirus, its future still remains very much unclear. Something that’s got many industry experts splitting hairs.

Halifax for instance predict that come 2021, house prices will fall between 2% & 5%. Whereas Rightmove remain rather more optimistic, forecasting a 4% rise (The Guardian).

And now with Sunak under pressure to extend the Stamp Duty Holiday just like he’s done with furlough, it seems like no one has a clear idea of when the Stamp Duty Holiday will end, or its effect on house prices in 2021. So to help you weigh up all the facts and come to your own decision, we’ve outlined the possibilities below, as well as had a word with our CEO, Jonny Christie.

*If you fancy brushing up on what Stamp Duty is and the basics of the Stamp Duty Holiday before reading on, we've got an article that explains everything here.

What is the Stamp Duty Holiday?

In a nutshell, the stamp duty holiday is an incentive that was enforced by the Chancellor of the Exchequer, Rishi Sunak, on July 8th last year.

The holiday gave buyers the chance to shave up to £15,000 off the price of their property purchase, which explains in itself why property prices and the number of property sales, saw a sharp increase throughout 2020. An increase so sharp that it's earnt itself a nickname - the ‘mini boom’.

But don't be fooled into thinking that the Stamp Duty Holiday is all about the housing market. Its purpose goes far deeper than that.

Yes, it was designed to prop up the housing market through what experts are calling "some of the toughest conditions this country has ever experienced" (Nick Leeming, Property Industry Eye), but its overall purpose extends way beyond the housing market.

It's an economic plan too. By keeping the housing market buoyant not only is job security higher, but also government revenue doesn't take a sudden hit. Remember, property is one the UK's largest and most valuable industries.

In 2019, Savills estimated the UK housing stock to be worth a whopping £7.39 trillion, so a blow to the housing market would be a big hit to the economy. Something no politician wants on their resume.

Why is it called the Stamp Duty Holiday?

Good question. Why is it not called the Stamp Duty Break or the Stamp Duty Relief? Is there something about the word ‘Holiday’ they we’re missing?

Okay, so it might seem like we’re being a bit pedantic here, but hear us out. There’s no getting around the fact that during the epidemic, the term ‘holiday’ has been used rather sparingly.

As well as the Stamp Duty Holiday there’s been house repayments payment ‘holidays’ and even ‘holidays’ for those who’re unable to pay their utility bills. So it beggars the question, has the term ‘holiday’ been used because of some legal significance?

If you ask us, we wouldn’t be surprised. You see, a holiday itself is defined as ‘an extended period of leisure and recreation’ – note the word ‘period’.

So while the Stamp Duty Holiday is a period of relief for buyers, that doesn’t necessarily guarantee anyone who’s taken advantage of it won’t be liable for it in the future.

Now we're not saying Sunak's going to send round the debt collectors post lockdown, but what we are saying is that we wouldn't rule something like a future SDH charge or fee, out of the equation.

Take mortgage holidays for instance. opt for one of these and what you’re essentially doing is deferring your payment.

Don’t be fooled into thinking it’s a good will gesture from your lender, it’s not. In fact it does them more of a favour than you, as by taking a payment holiday your mortgage term or loan amount could increase. All of which accrues interest over time, allowing them to make even more money out of you than they currently do. Not great!

Still sceptical? We'd encourage you to look at how the Stamp Duty Holiday has been marketed as we've noticed one commonality. The holiday is nearly always referred to as a scheme to save money on a property’s ‘purchase'. Yes, that could be because Stamp Duty only applies when purchasing a house so the media and indeed the government are yet to cover this subject, but it does beggar the question as to why.

Is there something we haven't been told yet? We've Googled far and wide for an answer and are yet to find one (other search engines are available).

NOTE: Now this may just be us being extra geeky and reading in-between the lines a bit too excessively, but nevertheless it's an interpretation we feel you should be aware of.

When does the Stamp Duty Holiday end? Will there be an extension?

The Stamp Duty Holiday is predicted to end on March 31st 2021, although that’s not to say it will. You see, while the government has confirmed that it “does not plan” to extend this temporary relief, that’s not to say it won’t. Just look at the furlough scheme.

Originally it was set to last until October 2020 and was then extended multiple times due to the second lockdown.

Come today and it’s been extended yet again due to the UK’s third lockdown and will now end on April 30th 2021. So as you’d expect, an extension to the Stamp Duty Holiday is not something that can be ruled out.

In the recent weeks Sunak has been under great pressure from the likes of estate agents, industry professionals and a large proportion of the British public to commit to exactly this - a Stamp Duty Holiday extension.

UPDATE: Since writing this blog, the petition to extend the Stamp Duty Holiday has reached over 140,000 signatures!

Ministers debated the issue virtually for 65 minutes on February 1st and in short, came to no conclusion. Treasury Minister, Jesse Norman, appeared to suggest that the deadline of March 31st would remain in place, as the holiday was only ever designed to be a “temporary measure”.

Reactions to the debate suggested that not extending the holiday would seriously affect 9.5% of all current house sales. It was also suggested by the chief policy adviser at Propertymark that no extension “could cause thousands of sales to fall at the final hurdle”. But ultimately, all we can do is wait and see if Sunak’s announces an extension to the relief in his upcoming budget on March 3rd.

What happens when the Stamp Duty Holiday ends?

What happens after the Stamp Duty Holiday depends on a lot of factors but particularly the UK’s current COVID situation and the condition of the housing market.

Exactly why we think it’s likely that some form of Stamp Duty Holiday Extension will be passed. Question is though, if it is passed, in what form will it be?

The way we see it there’s three clear routes the government can take if they choose to extend the Stamp Duty Holiday and that which one they pick will give us a good idea or how much of a threat they see COVID being to the housing market - so listen up...

The SDLT holiday is extended for everyone, buyers and sellers alike

• Aside from being the most generous route the government could take, we’re also pretty sure this would be the simplest.

• Cross out one date and write another in crayon – how hard could that be, right? Plus, it’s not like this tactic hasn’t been used before, so you could say it’s the government’s ‘go-to’; Furlough and Brexit are both a testament to that (awkward silence).

• But, as we mentioned above, it’s more what this approach tells us that’s important.
  Extend the floodgates for both buyers and sellers and Sunak's essentially telling us that there perhaps isn’t as much faith in the housing market as we’ve been led to believe.

• If there was, then why would they continue to prop it up? Fears of falling demand?

• Then again, with talk of tighter restrictions around the corner, this is one we can’t write off the cards.

The Stamp Duty Holiday is extended only for those Sold STC

• You could call this a more considerate, but also more confident end to the Stamp Duty Holiday.

• With SDLT playing a big part in affordability when buying a house, upping the stamp duty bands on sales that are yet to go through, could potentially do more harm than good.
  A flurry of last minute changes could lead to people’s house repayments in principal being revoked, a nationwide spout of gazundering and ultimately a large proportion of house sales falling through.

• Not exactly a stunning picture to paint, but nevertheless this approach also comes with a silver lining. It shows there’s confidence in demand and signals that it’s expect to remain, or not slump too bad once the Stamp Duty Holiday ends. Good intel to have!

Increase The Stamp Duty Rates... slightly (A makeshift transition period?)

• You could call this method more of a real-life test than a strategy, but we’d say it’s the most sensible approach of all three, and here’s why. Think of the Stamp Duty Holiday like Brexit.

• It’s a HUGE economic decision that the whole housing market will need to adjust to, just as it did to its introduction in July. A process that won’t just happen overnight. So, maybe Sunak waking up on March 31st and hiking the Stamp Duty bands straight back up to post COVID levels wouldn't be the wisest idea.

• Perhaps then we’re in need of a transition period. A period where Stamp Duty bands are increased in relation to the strength of demand, which if you ask Savills, could begin to stagnate throughout 2021.

• So while we would say opting for this route is sensible and would encourage anyone from the government reading this to give it some serious thought, an outcome like this could be a sign that there’s still a large portion of uncertainty around the property market post COVID property – something we’d urge you to keep an eye on.

What does the end of the Stamp Duty Holiday mean for the UK property market in 2021?

In short, no one knows and only time will tell.

With us being back in lockdown for the third time, with rumours of restrictions been tightened even further in the coming months, uncertainty is still very much a thing.

Yes, there’s been a HUGE vaccine rollout since the second lockdown, and yes the stats used by the government haven't exactly got a track record of reliability, but that doesn’t mean we should get ahead of ourselves.

Don’t get us wrong, there does appear to be a light at the end of the tunnel, but unfortunately, that doesn’t mean we’re out of the high water just yet.

In the event that restrictions are tightened even further, estate agents and other property services that are currently allowed to remain open could well be forced to close.

Companies that buy your house for cash like us, already have the majority of their staff either working from home or on furlough. All of which does its best to hinder the communication between a buyer, seller and their solicitors

And as any avid readers of our blog will already know, it’s strong communication that makes a fast and successful property sale.

Press on without it and there’s a risk chains could break as buyers’ eyes begin to wander, or the sale takes far longer than necessary to complete. Not ideal, especially when the deadline for the Stamp Duty Holiday isn’t all that far away.

But, how the end of the Stamp Duty Holiday will impact the property market in 2021 isn’t just all about the COVID situation.

Another factor that will highly influence the impact is of course how Sunak chooses to bring the SDLT holiday to an end. An abrupt end with no form of transition period (as mentioned above) could see the housing market become a lot more volatile as demand shifts, particularly in certain sub markets.

For instance, a sharp rise of inner city flats for sale and higher prices being paid for countryside retreats. Also, if Lockdown 3 is to be extended as well, we can expect the level of uncertainty to remain pretty high as…

Longer the lockdown = more serious the issue is to the government.

When questioned on this issue of the Stamp Duty Holiday will end, our CEO, Jonny Christie, also had this to say:

“While the end of the Stamp Duty Holiday does have the potential to disrupt the market during 2021, up to now the market has remained surprisingly healthy. Prices are high due to rising demand and house repayments approvals in particular have experienced a sudden flurry.

“In December, approvals hit a 13 year high according to figures from The Bank of England, which coincidentally is the highest they’ve been since August 2007 – the month just before the ‘Great Recession’. Now while this does at first glance seem rather worrying, it’s important to remember that the situation we’re in today is not the same.

“While banks have been lending generously, and quite rightly taking advantage of rising demands just as they were in the early noughties, lending criteria are now a LOT stricter, and buyers are also required to have substantially more equity in their loan. All of which means that financially the effects of COVID and an end to the SDLT holiday, should be less. However, that’s not to say they’ll be no repercussions.

"If you were to ask me, I’d say the end of the Stamp Duty Holiday is just one piece of the puzzle, as is the furlough scheme, which will also come to an end in April. Realistically, we should be looking at COVID as a long term hurdle for the property market, and not just a temporary blip. Yes, the end of the Stamp Duty Holiday is likely to cause demand to drop which could see prices fall, but the real question here is how quick can the economy recover? It's that which will determine how severe the 'COVID effect' on house prices will actually be."

*Jonny has dealt with over 3000 properties in his time in the industry and has recently voiced his oppinion on Brexit over the popular news outlet, Property Wire.

Should I sell before the end of the Stamp Duty Holiday?

With demand still reasonably strong and house prices rising 6% throughout 2020 (Halifax), we’d say yes, selling your property now would be a wise decision.

But if you’re after the best price you’d best make it quick, as the end of the Stamp Duty Holiday and the furlough scheme are both on the horizon; the Guild of Property Professionals predict that 1 in 3 people would abandon their house sale if they'd not completed by the end of Stamp Duty Holiday on March 31st (gulp).

Not that you’ll need to worry about generating interest or chain break if you sell your property to us.

As a cash buyer of property we’ll buy your house in as little as 7 days for CASH! No fees, no catch and no unnecessary marketing costs.

Our team have over 50 years’ experience in purchasing property and are on hand to assist you with your sale right through from start to finish. They’ll even help you negotiate the price on your onward purchase if you ask nicely.

Oh and did we mention, we’ll also arrange and pay for your solicitors, so if you’d rather, you can leave all the complicated legal business to us and concentrate on securing your onward purchase.