MortgagesAug 20 2021

How the end of the stamp duty holiday is affecting the market

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How the end of the stamp duty holiday is affecting the market
Credit: Lina Kivaka from Pexels

After a hard-pressed year as buyers sought to reap the benefits of the original stamp duty holiday, we now find ourselves past the halfway mark for the tapered tax break.

Buyers can save a maximum of £2,500 on stamp duty until September 30, after which the nil rate band will return to £125,000.

The current tax break is considerably smaller than the previous holiday, when buyers could save up to £15,000.

Yet business is still busy, according to some brokers. Aaron Strutt, product and communications director at Trinity Financial, says that while the market is quieter, many clients are still finding properties they want to purchase.

Adam Wells, director and mortgage and protection adviser at Lloyd Wells Mortgages, agrees: “We were worried that there was going to be a big drop off once the [June] deadline passed, but that hasn’t been the case.

“We’ve found that a lot of clients who were either priced out, or couldn’t move fast enough have now had offers accepted on properties.

“There does seem to be a number of people who removed themselves from the circus that was the property market who are now ready to start the house buying process.”

Annual house price growth in July remained in double digits, according to Nationwide’s house price index, but slowed to 10.5 per cent, compared to the 17-year high of 13.4 per cent of the previous month.

For some first-time buyers, the current stamp duty holiday is inconsequential. Buyers who purchase their first property for £500,000 or less pay no stamp duty up to £300,000, and 5 per cent on the amount between £300,001 and £500,000.

Andrew Brown, managing director at Bennison Brown, says first-time buyer transactions remain buoyant, and expects these transactions to overtake home-movers again in the second half of this year.

Meanwhile, the number of home-movers, buy-to-let investors and second-home purchases has dropped, particularly at the higher end of the market, says Brown.

Savings dwarfed by other costs

Angus Stewart, chief executive of buy-to-let broker Property Master, likens the £250,000 nil rate band to a red herring.

“For most landlords, given that they pay a 3 per cent additional tax on buy-to-let property, the stamp duty holiday ending in September at a maximum value of £250,000 is a bit of a red herring.

“The increase in house prices, some of which can be attributed to the tax break, has to some extent cancelled out any gains there.”

Nationwide’s chief economist, Robert Gardner, says savings from the stamp duty holiday were “dwarfed” by the impact of recent house price gains.

“For example, the price of the typical UK property increased by around £24,500 between July 2020 [and] the end of June this year, whereas the stamp duty saving on that property for a home-mover (in England) was circa £1,900,” says Gardner.

“For a £500,000 property that saw the same average increase as the typical property over the same period, the comparable house price increase was circa £57,000 against a stamp duty saving of £15,000."

Wells says only one of his clients has mentioned the September deadline for the stamp duty saving, with most seeing the current discount as a silver lining compared to the “huge sums” they are spending on buying a new home.

Chris Sykes, an associate director and mortgage consultant at Private Finance, describes a similar sentiment among clients. “Some buyers are keen on hitting [the September deadline] but not to the extent of the June deadline by any stretch of the imagination.

“The saving now is up to £2,500 rather than £15,000, so it is a tiny percentage of what it once was. It’s seen as a ‘nice to have if possible’ but it wouldn’t necessarily be a deal breaker.”

Trinity Financial’s Strutt agrees there is not the same level of demand for the tapered stamp duty holiday compared to when people were “desperate” to complete before the June deadline.

The provisional, non-seasonally adjusted estimate of UK residential transactions in June is 213,120, according to statistics from HM Revenue & Customs. The figure is 108.5 per cent higher than the previous month, as taxpayers sought to complete before the June deadline.

Improvements among lenders

Lenders’ time frames have also “greatly improved as a whole”, notes Alex Kemp, a partner at Ideal Mortgage Advisers, after service levels slowed as lenders received record volumes of business, in part due to the stamp duty holiday.

Virgin Money and Clydesdale Bank have announced their intermediary service commitment will return this month, where customers will receive £100 if they do not receive an offer within 10 days of a fully packaged application being submitted.

But Kemp says his business has seen some delays with larger lenders that have recently been “very aggressive” on rates, amid a sub-1 per cent mortgage rate war. 

Figures from Moneyfacts show the average two-year fixed rate at 60 per cent LTV has dropped year-on-year, from 1.86 per cent in August 2019, to 1.71 per cent and 1.55 per cent in the same month of 2020 and 2021 respectively.

  Aug-19Aug-20Aug-21

60% LTV

Average two-year fixed rate1.86%1.71%1.55%
Average five-year fixed rate2.23%1.98%1.79%

Source: Moneyfacts Treasury Reports. Data shown is as at the first available day of the month. 

As well as improved service levels and lower rates, lenders are relaxing their criteria for the self-employed, who have seen their mortgage chances adversely affected as a result of the pandemic.

“We’re seeing lenders become a little more relaxed towards self-employed applicants now, however mortgage lenders are still unlikely to accept an application from anyone who received the SEISS [Self-Employment Income Support Scheme] grant within the last three months,” says Kemp.

Natwest, for example, is now accepting applications from self-employed customers who received government Covid-19 support by way of SEISS grants, providing this is not within the three months before the application.

More lenders are also now accepting variable income such as bonuses, commission or overtime than before, Kemp says, but adds that this is more related to people returning to work due to the easing of lockdown, rather than any criteria driven by a change in the stamp duty threshold.

“Lending criteria is easing up and improving,” says Trinity Financial’s Strutt. “Many borrowers have access to lenders offering their most generous mortgages with the best rates they have ever had.”

Chloe Cheung is a features writer at FTAdviser