Richard Groom is head of mortgage sales at the Tipton
In response to Covid-19, the UK Government have introduced many incentives to support personal and business finance, keep people in work, and keep the economy going. From the furlough scheme, to mortgage payment holidays, an array of incentives have been made available to help keep the country moving.
One of the more recent incentives includes a change to stamp duty limits. Where the standard limit for stamp duty is set at £125,000 for residential properties, the government’s new limits mean that until 31 March 2021, residential property purchases below £500,000 will not be liable for Stamp Duty Land Tax.
So, what effect has this had on the market?
Within 30 minutes of the announcement on Stamp Duty changes, website traffic to Rightmove increased by 22%. Following this, house sales increased by 15.6% during August 2020.
It is thought that the incentive has encouraged those who were considering buying, or moving, in the short-medium term future, to speed up their plans and begin their journey sooner. The changes mean that 90% of buyers in the market will pay no stamp duty at all, with an overall average saving of £4,500 in Stamp Duty Land Tax (SDLT) alone.
This is further supported by the recent Building Societies Association’s (BSA) research, showing that 11% of Brits wish to buy a new home before the incentive ends in March 2021.
While the incentive seems to be having the desired effect of getting the market moving, there are concerns. It is thought that due to the increase in demand, and extra cash available from buyers (which would have originally been allocated to SDLT) house prices are experiencing a sharp rise. The increase in homebuyers has led to bidding wars, with some offering over asking price.
So, are the changes to SDLT a short-term fix or a long-term solution? If demand is to take a sharp downturn following March 2021, it is concerning that property prices may also drop as a result of this.
A large drop in property prices could leave those with high loan to value mortgages in negative equity, which may be a contributing factor as to why lenders are reluctant to re-enter the high LTV mortgage market.
Alongside higher LTV mortgage products being withdrawn, the SDLT incentive is also unlikely to benefit all first- time buyers. Many FTBs already benefited from a reduction in SDLT prior to the new incentive. This may mean that as well as it being harder for them to obtain a high LTV mortgage; the market could still experience a lack of FTBs making their entry.
Overall, while the benefits of the government’s SDLT incentive can be seen by all, the long-term effect is yet to be seen. If demand or property prices are to drop when the scheme comes to an end, there is a danger that those purchasing during the scheme will see a drop in equity in their properties. However, this is unlikely to be long term as the market makes it is way back to some kind of normality.