What is Stamp Duty?
Stamp Duty Land Tax (SDLT) is a one-off fee paid by anybody who is purchasing a property or piece of land over a certain price.
Until June 2020, most house buyers in England and Northern Ireland had to pay stamp duty on properties over £125,000. The rate of stamp duty is variable and depends on both the value of the house and the type of property (e.g. residential, second home, or whether you’re a first-time buyer).
What is the Stamp Duty Holiday?
In July 2020 the chancellor announced a cut in stamp duty to “catalyse the housing market and boost confidence” after the market saw a huge dip at the beginning of the coronavirus pandemic. The threshold at which buyers started to pay stamp duty was increased from £125,000 to £500,000. According to Nationwide, this saved some buyers as much as £15,000 when purchasing a home.
This year the stamp duty holiday is being rolled back. The first move back towards normality was on July 1st. Stamp duty began to kick in above £250,000 at the following rates:
- £0-£250,000 = 0%
- £250,001-£925,000 = 5%
- £925,001-£1,500,000 = 10%
- £1,500,000+ = 12%
From October 1st rates will completely return to normal. This means that stamp duty will begin to be paid above £125,000 at the following rates:
- £0-£125,000 = 0%
- £125,001-£250,000 = 2%
- £250,001-£925,000 = 5%
- £925,000-£1,500,000 = 10%
- £1,500,000+ = 12%
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How has the stamp duty holiday impacted property prices?
The stamp duty holiday has created a huge boom in the property market over the past year. Combined with other factors such as record low interest rates, government-backed mortgage schemes, and a shortage of listings due to the pandemic, the scheme has driven a 13.4% yearly increase in UK property prices (Nationwide).
There are early signs that the market is starting to cool down though. House price increases slowed down in June, increasing only 0.8% compared to the 1.8% and 2.1% increases seen in the previous two months.
What will happen when the stamp duty holiday ends?
The impact of the end of the holiday will depend on the influence of other factors, such as interest rates, the strength of the labour market, and market supply. However, experts are generally predicting that house prices will dip in the short term.
Kate Davies, executive director at the Intermediary Mortgage Lenders Association, says that demand is likely to ‘soften’ after the holiday ends. Whilst Sarah Coles, personal finance analyst at Hargreaves Lansdown, thinks that the pandemic could still throw a spanner in the works and change the trajectory of house prices in the short term.
Karen Noye, Quilter mortgage expert, has stated that once the holiday is over we are likely to see “some of the froth come out of the market and this may then lead to a slow and steady decline in prices”.
Larger institutions such as the Centre for Economics and Business Research are predicting that house prices could fall as much as 14% as we enter 2022, whilst OnlineMortgageAdvisor are expecting house prices to “dip in 2021”.
What does the future hold for property in the UK?
Demand is undoubtedly slowing down as the stamp duty holiday is now tapering and will end in October. As coronavirus restrictions end and people feel more comfortable having strangers in their house, supply is likely to increase. It’s possible that the Bank of England will increase interest rates to combat inflationary pressures caused by growing house prices, which will in turn increase the cost of borrowing and dampen demand. Finally, labour market shocks caused by new variants and the continuing effects of the pandemic could have a negative impact on demand.
All of this means that house sales are likely to start taking longer, and prices are likely to stabilise and possibly dip. If you’re looking for another option for the sale of your property, SmoothSale can help. Our cash house buyers service is designed for vendors looking for a guaranteed sale of their property in as little as 7 days. Alternatively, we offer an ‘Investor Marketing’ route to market for vendors who want to sell their property to our network of trusted investors in under 30 days.
Get a cash offer today! Alternatively, get in contact on 0113 539 600 or email firstname.lastname@example.org.