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29 Jun 2021

End of Stamp Duty Holiday: What Does This Mean for The UK Property Market?

In July 2020, the chancellor, Rishi Sunak, announced a stamp duty holiday in England and Northern Ireland to jumpstart the country’s lagging property market. If the purchase is completed before the end of June, buyers do not have to pay stamp duty on the first £500,000 of the purchase price. This tax reduction has allowed buyers to save up to £15,000 on property purchases.

However, on the 30th of June, the stamp duty holiday will come to an end. From 1st July to 30th September, the nil-rate threshold moves to £250,000. This allows for a gradual transition to prior stamp duty rates, which will begin on October 1st.

The booming property market

In recent months, activity in the property market has continued to rise to record-breaking levels. Buyer demand has risen significantly and supply has hit a new low. As a result, property prices have risen drastically over the last year.

According to research published by Zoopla, the property market is on track to experience the busiest year since the financial crisis. Sale completions are expected to reach a high of 1.5 million this year. This amount jumped to 1.04 million last year, indicating a massive spike in activity. The number of transactions in 2020 was the largest since 2007.

The impact of stamp duty holiday

Despite temporarily shutting down in 2020, the property market picked itself back up over the last year. Total sales for the year exceeded those for the previous year by more than 10%. One reason for this is that the stamp duty holiday urged many homeowners to be proactive in their purchases. With the opportunity to save up to £15,000 on their property purchase, buyers were racing against the clock to meet the deadline. Therefore, causing a spike in activity.

What will happen to the property market when the stamp duty holiday ends?

Experts are divided as to what turn the market will take. The stamp duty holiday has had a positive impact on the property sector and the economy. The number of people wanting to buy a house quickly outweighed the number of available houses – increasing the average price.

Some experts believe this demand could drop towards the end of the year, potentially decreasing prices. Once the majority of the demand is met, some of the urgency to move will be taken away. Higher prices, coupled with a lack of supply, could reduce the desire to move. As a result, tenants may choose to stay in the rental market for longer.

CityRise Verdict

 

Following the incredible rate of activity that the market has experienced over the last year, a natural decline is expected. We predict Q4 2021 will see a slow and steady decline, which won’t impact prices drastically.

Nonetheless, there is still strong buyer demand. With businesses being open to flexible and remote working, more people are searching for a home that will facilitate an office. Also, different regions of the UK have been growing at different rates. For example, cities in the north have been growing at a much faster rate.

However, the reintroduction of 95% mortgages combined with a return to offices could encourage people to move back to the city. Demand is still high for housing in rural areas, and supply is sparse. Thus, a great opportunity for property developers to start building in these areas.

For buy-to-let investors, the end of stamp duty holiday means demand will naturally decline. Prospective homeowners who are currently in the rental market, who have missed the stamp duty holiday, will likely stay in the rental market for longer. Houses will become more expensive without the stamp duty holiday. The economy is yet to fully recover, and unemployment is still high. Because of this financial uncertainty, tenants may choose to stay renting for longer. Especially because at the moment, renting is cheaper than buying for the first time in six years. As a result, demand will increase for rented, city-centre accommodation.

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