The Times reports today that chancellor Rishi Sunak plans to extend the stamp duty holiday until the end of June. However, the official announcement will be made during the 3rd March budget. However, questions remain over whether the rumoured extension will apply to new buyers or only those caught in the transaction pipeline.
The chancellor had been urged to push back the deadline as many people have been left scrambling to complete their transactions before the end date with Rightmove estimating 100,000 could miss out.
Last year the Treasury announce the stamp duty holiday in a bid to fire up the property market. The stamp duty threshold has been temporarily raised from £125,000 to £500,000 for property sales in England and Northern Ireland. In Scotland and Wales, it was increased to £250,000.
Rightmove have been crunching the numbers on the back of this latest rumour to see what effect it could have. According to data, the portal estimates an additional 300,000 property transactions in England could benefit from the tax saving. This is based on previous HMRC data. If an additional 300,000 transactions made it through, buyers could save £1.75bn in total. Based on the current sales that have been agreed in England, 80% would pay no stamp duty because of this holiday. There are an estimated 628,000 sales in total still currently in the legal process across Great Britain. Including those that were agreed last year and those that have been agreed so far this year.
Tapering the extension to the stamp duty holiday
The Building Societies Association (BSA) believes that a tapered end would allow any house purchase where the mortgage approval has been granted by the end of March, an additional three months to complete while still benefiting from the rate reduction. In addition to supporting homebuyers who are likely to have budgeted based on the Stamp Duty saving. A taper of that length would also ensure that lenders and conveyancers could manage operational pressures in a Covid-secure way.
Stamp duty holiday boosted sales by almost 140%
The stamp duty holiday has restored housing transactions to the highest level since 2007.
A new report by the Centre for Policy Studies looks at the effects of the measure introduced by the Chancellor in response to the pandemic. Within this report it finds that after an initial sharp decline in sales between April-June 2020, the number of transactions increased from 132,090 in Q2 to 225,870 in Q3. With the number of transaction rising to 316,300 by the end of Q4. The highest level since before the global financial crisis in 2007/8.
The think tank’s research shows that stamp duty revenues actually rose by 27% in Q3 compared to Q2, from £1.1bn to £1.35bn. Predictions suggests that they will rise again in Q4 given the continued increase in transactions.
The stamp duty holiday has helped hundreds of thousands of homeowners. The CPS’s research shows that 87% of people buying a primary home escaped the deeply unpopular tax thanks to the holiday. A figure which rises to 93% outside of London and the South East. The stamp duty holiday has also acted as a very effective form of stimulus for the construction industry. Giving the industry the confidence to keep building rather than seeing housebuilding collapse as in previous recessions. Between Q2 and Q3, the number of new builds started rose by 134% from 17,580 to 39,880. The number of new builds completed rose by an even more impressive 164%, from 16,310 to 43,070.
What could the future of the property market be like?
The looming end of the stamp duty holiday risks having a chilling effect on the housing market. Along with possibly repeating the housing bust of 1988 when the market slumped after tax relief was ended.
The CPS is calling on the Government to either permanently increase the threshold on primary residences to £500,000 or abolish the tax outright. The headline cost of keeping the threshold increase alongside the CPSs’ proposed reform to the rates would be around £3 billion. However, the think tank estimates that it would actually cost just £500 million. This takes into consideration the wider economic benefits. In addition, boosting new build construction by at least 20,000 homes per year. As well as helping homeowners and the economy adjust to the changes brought about by the pandemic.
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