Welcome lift for housing market as stamp duty break extended
Stamp out the duty
AN extension to the stamp duty holiday will spark a modest rise in house prices and stimulate transactions, the Treasury’s independent forecaster has said.
Rishi Sunak said that the tax relief would continue for another six months, in a boost to the housing market and a major victory for The Daily Telegraph’s Stamp out the Duty campaign.
As the Chancellor read out the measure, the Prime Minister gave a thumbsup signal to The Telegraph’s journalist in the press gallery.
The Chancellor said the current holiday, which sees the nil-band rate apply up to a threshold of £500,000, would be extended for three months until June 30. A tapered rate of support, which will see the nil-band rate apply up to a threshold of £250,000, will then be introduced for a further three months until Sep 30. Thereafter, the threshold will be reinstated at £125,000.
Mr Sunak’s announcement gives buyers who have been grappling with major logistical delays more time to take advantage of the tax break.
The Office for Budget Responsibility said the main effect on the market forecast would be “to shift transactions to just before the scheme’s new end date”. However, it said the move would also “result in some additional transactions and raise house prices a little”.
The independent forecaster said house prices would fall back again as the labour market deteriorated. House prices are set to grow by 5.1 per cent this year, then fall by -1.7 per cent next year.
The market is then set to pick up with a modest growth in prices of 0.8 per cent in 2023, followed by more robust growth of 3.9 per cent in 2024 and 4.3 per cent in 2025, the OBR predicted.
House prices have proven resilient during the pandemic, in part “due to the smaller impact of the pandemic on the incomes of high earners”. Housing may have provided an outlet for people who have built up savings due to restrictions on social consumption, the OBR said.
The extension applies to all transactions in England and Northern Ireland, including buy-to-let investors.
The deadline for buyers to take advantage of the higher £500,000 nilrate band has been extended by three months. This means buyers in England and Northern Ireland can save up to £15,000 in tax if they complete by June 30. After this date, the nil-rate band will drop to £250,000 until Sep 30. The maximum tax savings will fall to £2,500 during this period.
The property industry had been warning that thousands of buyers would pull out of deals if they could not transact in time for the tax benefit.
Tapering the end of the tax holiday will create breathing room for conveyancers, who have been hit with soaring demand caused by the tax break.
Just by extending the stamp duty holiday to the end of June, Mr Sunak will allow an extra 300,000 sales in England to benefit from tax savings, according to property website Rightmove. Buyers completing during this period will save a collective £1.75billion in tax, with 80 per cent paying no stamp duty at all.
The policy will help boost confidence in the property market and hold off forecast house price falls.
Andrew Wishart, of consultancy Capital Economics, said: “We no longer think that house prices will fall this year.” Previously, the company had forecast a 5 per cent price drop in 2021.
The OBR has forecast there will now be 41,700 more transactions between April and June than it had expected in November. But there will still be a drop in sales after the nil-rate band drops to £250,000. The OBR has now forecast there will be 29,700 fewer sales overall this year than it expected in November.