In an attempt to mitigate the effects of the COVID-19 pandemic, Chancellor Rishi Sunak announced an extension to the Stamp Duty Land Tax (SDLT) holiday, along with a new mortgage guarantee.
Stamp Duty Land Tax (SDLT) Holiday Extension
The stamp duty holiday on property purchases below £500,000 has now been extended for 3 months until the end of June, which will be welcomed by many homebuyers who would not otherwise have been able to beat the original March deadline.
After 30th June 2021, the limit of the exemption from stamp duty will be reduced from £500,000 to £250,000 until the end of September 2021, followed by a return to “normal” rates for purchases over £125,000 from 1st October 2021. Rightmove is predicting that over 300,000 buyers will benefit from this move.
The gradual removal of the tax concession was unexpected but is to be welcomed as it avoids a ‘cliff-edge’ for buyers trying to meet the 31st March deadline. However, the cliff-edge effect is not removed entirely. For example, the current saving of £15,000 for a property being bought for £500,000 will reduce to a saving of £2,500 on Completions between 30th June and 30th September 2021. It is likely therefore that huge pressure will remain in the system to complete purchases as soon as possible.
Despite the stamp duty holiday extension, the Chancellor announced that “there is still a significant barrier to people getting on the housing ladder.” Therefore, the Government have agreed to back mortgage offers of up to 95% LTV (loan-to-value). This will undoubtedly help would-be homebuyers who have struggled to raise a 10% or more deposit.
However, arguably, this will further fuel house price increases which are already being seen throughout the market and as a result, may adversely affect affordability. Affordability of houses goes beyond just the deposit; lenders will also assess homebuyers’ household income, which means that the mortgage guarantee may not be as supportive for low income earners who may still struggle to raise enough for a deposit. Therefore, we may see the implementation of this new guarantee scheme having the opposite effect to that which was intended.