The five-year anniversary of the stamp duty surcharge will enable demand in the mortgage market to stay strong this year despite the end of the stamp duty holiday, a trade association has said.
Many have predicted the mortgage market will slow down when stamp duty reverts to its pre-holiday rates on April 1, the date which also marks the five-year anniversary of the stamp duty surcharge.
But Kate Davies, executive director at the Intermediary Mortgage Lenders Association, said: “Thousands of landlords who took out five-year fixed-rate mortgages to grow their portfolios before the tax came into place will now be coming to the end of their mortgage terms, providing plenty of opportunity for demand to remain strong in the mortgage market through 2021.”
Since April 2016 those buying a residential property in addition to one they already own have usually had to pay 3 per cent on top of stamp duty rates.
Data from HM Revenue & Customs showed an “unseasonal peak” in March 2016 caused by significantly increased residential transaction completions before the surcharge was introduced.
While Bank of England statistics show mortgage approvals for house purchase increased to 97,500 in October, the highest since September 2007, Ms Davies warned demand could drop after the stamp duty holiday.
She said: “[We] can expect a lot of activity to be focused on purchases in the first three months of the new year – and the level of demand may fall away immediately after the critical March 31 date.”
David Thomas, chairman of the Society of Mortgage Professionals, also predicted a “significant slowdown” when the stamp duty holiday ends.
He said: “Whether or not [the holiday] is extended, we face a tough economic outlook for quite some time, with rising unemployment and cautious consumer spending likely to have an impact.
“Lenders will continue to be generally risk-averse in the products they offer. It may be in March, or further ahead, but the stamp duty holiday will have an end, and a significant slowdown in the market is likely at that point.”
Working in a high demand environment
According to Mr Thomas, managing client expectations would be critical in the run-up to the stamp duty holiday deadline.
He said: “Given the significant demand we have seen in the second half of this year, and the assumption that the government will not change its stamp duty deadline, management of client expectations in Q1 will be key.
“We are already hearing that many solicitors and conveyancers are concerned with applications now being able to meet the deadline so it's already time to get that message across.”
At the end of November, online mortgage broker Trussle warned potential property buyers to budget for stamp duty in the event they miss the March 31 deadline for the tax holiday.
It came after Legal & General Mortgage Club said homebuyers should start their property search by November to avoid missing out on the stamp duty holiday.
Amid high levels of demand from borrowers fuelled by the stamp duty holiday, IMLA announced in September it would be surveying members to identify the challenges faced by lenders that were putting a strain on service levels.