What Does the Stamp Duty ‘Phase Out’ Mean for Investors?
Homebuyers in the UK have benefitted from the stamp duty holiday since July 2020. The tax break was due to expire in March 2021, but because of its success, it was fully extended throughout June. Currently, the stamp duty holiday is being phased out. By October 1st, rates will return to normal.
Whilst the stamp duty holiday was in place, the property market was exceptionally active. This was expected, as the tax break drew in plenty of new buyers. However, the recent Halifax House Price Index revealed that in August, house prices rose by 0.7%, surpassing the forecasted 0.4% monthly rise. Typically, we expect to see house prices rise month on month. However, this is particularly interesting. Throughout the ‘phase out’ of stamp duty, house prices have continued to rise. Many investors are wondering what the end of stamp duty holiday means for the property market. Will house prices dip or stay the same? Here is everything we know so far:
What is the stamp duty holiday?
Chancellor Rishi Sunak introduced the tax break on stamp duty back in July 2020. The government wanted to inject life back into the property market. Following the national lockdown, the property market suffered a stagnant period. Restrictions were in place and there were high levels of national, financial uncertainty.
Whilst the stamp duty holiday was in place, no tax had to be paid on the first £500,000 of property purchases. The previous threshold was £125,000 (and for first-time buyers, it was £300,000). Once property prices surpass the value of £125,000, the amount of stamp duty tax paid is dependent on multiple factors such as:
Consequently, the holiday has been credited for its impact on the property market. It was a huge contributor to the house price rises that we saw in 2020/2021. Given the global pandemic, the rise was extremely unprecedented. However, in the face of uncertainty, the property market excelled.
March 2021 was the original end date of the stamp duty holiday. However, the Chancellor extended the tax break. In July 2021, the transitional period began. In this period, buyers did not have to pay tax on the first £250,000 of a new property. From 1st October, the stamp duty threshold will return to pre-Covid levels.
What will happen to house prices once the stamp duty holiday ends?
Initially, experts predicted a dip in property prices. This is because there will be less demand from people who are desperate to buy homes before the stamp duty holiday deadline. However, unexpectedly, house prices have continued to rise month on month, despite stamp duty being in a ‘phase out’ period.
Also, the lack of housing supply is continuing to drive up prices. Buyers are competing for a limited number of homes. Therefore, the ongoing supply and demand imbalance will support the rising house prices.
As it stands, there is no clear consensus. The property world has had an extremely robust year. Therefore, we can not expect the high level of activity to continue forever. The fact that house prices have continued to remain on an upwards trajectory is extremely promising for the future.
Currently, the property market has been soaring at extreme heights. Therefore, as the saying goes, what goes up, must come down. A ‘crash’ in the market would be overstated. As we can see by the Halifax House Price Index, the fact that house prices have continued to rise over the last few months is extremely promising.
Also, it is worth noting that first-time buyers can still benefit from stamp duty relief on houses priced under £500,000. Prices skyrocketed and many first-time buyers were priced out of the market. Therefore, a levelling out in the market could result in an influx of buyers stepping onto the property ladder.
Property investors can rest assured, as, despite the stamp duty holiday coming to an end, property remains a lucrative asset. The main reason for this is that the undersupply in the UK simply does not have enough property to house everybody. As long as we have high demand and low supply, property prices will keep on growing. Therefore, even in the face of national, financial uncertainty, property investors can always be certain that society will need housing. Therefore, property is inherently a predictable and safe investment vehicle.
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