The government’s stamp duty holiday, which was designed to keep the housing market afloat during the darkest days of the pandemic, finally came to an end after 14 months as 2021 drew to a close.
The tax break meant buyers paid no stamp duty on homes worth less than £500,000, and saved £15,000 above that threshold. Data from Rightmove showed that 1.3 million buyers benefitted from the relief during 2020 and 2021, but also suggested that it resulted in a £16,000 rise in the asking price of a home nationally between July 2020 and July 2021 – not exactly the panacea to struggling families it was sold as.
In fact, contrary to expectations, many property professionals were vocal opponents of the measures. Tom Bill, head of research at estate agent Knight Frank, said last year that, far from making home ownership more achievable, it had “distorted” and “turbo-charged the market,” causing double-digit house price growth and making the deposit needed to buy a home even higher.
“The end of the holiday can be viewed as positive, signalling a return to post-pandemic normality,” Bill added.
The handout was supposed to encourage buyers at all price levels to move, but in reality it particularly appealed to second and third-steppers looking to upsize the family home. It also incentivised investors to purchase flats again in the new, tax-free environment.
Now, only first-time buyers are entitled to stamp duty relief on property worth less than £300,000, so there will be less competition from buy-to-let investors or those buying city boltholes or weekend getaways for the future.
Another 2021 survey, from The Financial Wellbeing Forum, found that the stamp duty holiday pushed people to rush to buy a home, over-stretching themselves and leading them to make poor budgeting decisions.
More than half (56 per cent) of home buyers aged 25 to 34 said they rushed their purchase to take advantage of the tax-free window and exceeded their moving budge as a result. Londoners polled overshot their budget the most out of any region of the UK, by £27,000 on average.
In theory, then, the post-stamp duty holiday market should be a friendlier place for first-time buyers – those who are taking their first step on the housing ladder do not have to pay any stamp duty on properties under £300,000, whereas existing homeowners and landlords are required to pay the tax on all properties over £125,000. This should give first-time buyers an advantage when it comes to securing the type of properties at the lower end of the market the typical first-time buyer is looking for.
Further government schemes are also in place to try and smooth the path to home ownership. The Mortgage Guarantee Scheme, for example, which is currently due to run until the end of 2022, sees the government guarantee 95% mortgages for first time buyers. The theory is that this will make more lenders inclined to offer such high mortgage rates to help first-time buyers, although anecdotally the jury is still out on exactly how successful this has been in spurring mortgage providers into action.
With the stamp duty holiday over, we are likely to see house price growth slow down – but don’t expect prices to drop anytime soon. The estate agencies Savills and Hamptons predict that prices will rise by 3.5% over 2022, though both agents say they expect slower growth than we saw in 2021.
With some uncertainty remaining around Covid-19, rising inflation and Bank of England base rate, and new surprises such as the potential for war in Europe and soaring energy bills also thrown into the mix, we could still see plenty of volatility in the market, so if you are looking to buy, you might have to be prepared to ride out any twists and turns still to come.
