Buyers’ race for space
THE STAMP DUTY HOLIDAY
CHANCELLOR Rishi Sunak’s stamp duty holiday was supposed to save the property market from a pandemic-induced slump, but instead it has helped drive activity to fresh highs.
Prices jumped 10.9 per cent in a year to an average of £242,832 in May, according to Nationwide, and it predicted that growth could accelerate even further.
That was not what the Chancellor anticipated when he announced the stamp duty holiday in July last year, at a time when many feared house prices were set to plummet.
Sunak lifted the stamp duty threshold from £125,000 to £500,000, saving buyers who complete before this year’s extended June 30 deadline a maximum £15,000.
After that, buyers will only escape stamp duty on the first £250,000, reverting to £125,000 from September 30. Can today’s booming property market survive without this valuable tax break?
The stamp duty effect is already fading, as buyers accept they have missed out.
Anybody bidding on a property today will struggle to complete before the September 30 deadline, with transactions taking four to five months to complete, amid what Search Acumen director Andy Sommerville calls a “conveyancing crunch”. “Lawyers now face a huge task to clear the backlog of transactions,” he said.
Demand for mortgages is slowing, as Bank of England figures show net mortgage borrowing plunged to £3.3billion in April, a fraction of the record £11.5billion in March.
Few property experts anticipate a crash though, as a number of other factors continue to underpin demand.
Paul Stockwell, Gatehouse Bank’s chief commercial officer, said there is still “frenzied competition” for homes as post-lockdown buyers seek houses with gardens. “The ‘race for space’ will drive the housing market over the summer at least,” he said.
Sam Mitchell, chief executive of online estate agent Strike, said: “Low housing stock, rock-bottom interest rates and the Government’s mortgage guarantee scheme for 95 per cent loan-to-value mortgages should keep buyers piling through the door.”
The pandemic has changed attitudes among younger people, who are no longer splurging on plastic but saving for the future, said Peak Mortgages and Protection managing director Rhys Schofield. “We are seeing a growing pool of first-time buyers, cash rich after a year of limited spending and desperate to get on to the housing ladder rather than fritter money away on rent,” he said.
Mortgage rates could even get cheaper, said Rob Gill, managing director of broker Altura Mortgage Finance. “Lenders seem to be entering a price war, with a number of new deals at the eye-catching rate of 0.99 per cent.”
They are more wary about lending to buyers with small deposits though, which suggest some are cautious about the potential of a crash triggering negative equity.
Mark Dyason, broker at Edinburgh Mortgage Advice, said lockdown savings are also underpinning today’s activity but warned of a looming threat that could rattle the market later this year.
The Chancellor’s furlough support scheme is scheduled to end on the same day as the stamp duty holiday, September 30. Dyason adds: “That is when we will discover its impact on employment and the knock-on effect on household finances and property prices.”