How will the stamp duty holiday ending affect you?

Anyone buying or selling a house at the moment is likely to have the March 31 ringed on your calendar.

That is the date when the current stamp duty holiday runs out, meaning that if your transaction completes after this date it could cost you many thousands of pounds.

The temporary holiday, announced by the Chancellor in July, means that anyone who buys a new property pays no stamp duty on the first £500,000.

When Rishi Sunak introduced the tax break, in his Summer Statement, he said that it was due to a collapse in property transactions.

‘We need people feeling confident – confident to buy, sell, renovate, move and improve,’ he said, adding that the move would ‘catalyse the housing market and boost confidence.’

Six months on, though, and many of those who decided to buy new properties in order to benefit from the holiday are wondering whether they will miss the deadline.

Many estate agents and clients report huge delays in the home-buying process, with Matthew Cooper, of Yes Homebuyers, saying the policy has caused ‘huge market delays’.

Jamie Morrison, Head of Private Client at accountancy firm HW Fisher says there are an ‘estimated 160,000 home sales stuck in limbo’. There are fears that many of these could fall through entirely if they miss the March deadline.

Given the issues, it is widely expected that the Chancellor will extend the deadline when he announces his Budget on Wednesday. But many questions remain over how he will do this and how it might affect new and existing home buyers.

What we know now

Stamp duty, or Stamp Duty Land Tax to give it its full name, can be a very expensive part of buying a property.

Normally, if you buy a property, the first £125,000 of the purchase price is tax free, and then you pay a tax of 2% on the next £125,000.

Tax is then levied at five per cent on any proportion of the price after that up to £925,000, and then it rises to ten per cent and then 12% if the house is worth more than that. Those buying a second home pay even more – an extra 3%.

This means the stamp duty holiday is potentially very valuable. Although those buying a second home will still pay the 3% extra, they also benefit from the rest of the discount. The maximum saving that can be made is £15,000.

If there is no stamp duty holiday extension, transactions completed after the end of March will not benefit. In some cases, these transactions will have been started months ago, in the expectation they would be completed long before spring.

Instead, they have been hit by unexpected delays, as the stamp duty policy has been a victim of its own success.

Kevin Roberts, the director of Legal & General Mortgage Club, says that while Rishi Sunak’s policy ‘helped to position the housing market as a driving force behind the economic recovery’, it also created huge backlogs, with solicitors and mortgage brokers having to process huge volumes of transactions, often while working from home or with reduced staffing levels.

‘Our research shows that at the peak of activity it was taking up to 17 weeks to complete on a property purchase. This means there are consumers who started their home-buying journey last year in the hope of taking advantage of the tax incentive, but who are now unlikely to complete before the current deadline,’ he says.

The March 31 deadline creates a ‘cliff edge’, and many experts fear that customers will pull out of transactions if they are likely to miss the deadline, in turn meaning that chains of home buyers and sellers are broken.

‘Without an extension, we could see gaps opening up in property transactions, potentially causing whole chains to collapse before April, at a key time in the country’s post-pandemic recovery,’ explains Martijn van der Heijden, Chief of Strategy at online mortgage broker Habito.

Miles Robinson, from online mortgage broker Trussle, says his firm’s research indicates that as many as 105,000 property transactions could collapse if buyers are unable to complete before the deadline.

‘Using the average UK property price of £269,150, the value of property transactions that are likely to fall through due to the holiday’s hard stop could be as high as £28billion,’ he says.

But keeping the holiday in place is controversial, too. Martijn, at Habito adds that the stamp duty holiday itself has had other consequences, including pushing up house prices, making them less affordable for young people.

‘Given the Conservatives’ commitment to getting young people on the property ladder, it’s only right that there is not a long-term extension of the scheme,’ he says.

‘It’s an expensive tax break for the Treasury to run, and there’s likely to be strong calls for tax breaks to be offered elsewhere as the economic recovery starts in the summer.’

What might happen next

When the Chancellor stands up on Wednesday he is widely expected to announce some form of an extension to the stamp duty policy.

Some experts believe he will offer a straight three-month extension to the holiday, giving those in the system time to complete their transactions.

However, Eleanor Williams, financial expert at financial information group Moneyfacts, says she is concerned that a policy like this will ‘simply delay or even worsen the potential cliff edge in activity’, as far more people will try to buy homes in the extended window.

Instead, she advocates a tapered approach to ending the scheme that would avoid a ‘sudden collapse in activity’.

A tapered scheme would mean that those who are already in the process would benefit from the tax break, but others who begin the process now would not.
Miles, at Trussle, agrees.

‘A “tapered” ending, that guarantees the holiday to buyers already in the process, could avert a situation where we see thousands of housing transactions collapse,’ he says.

It is currently not clear whether Sunak will announce a tapered scheme or a simple extension.

‘The £3,500 stamp duty saving means everything’

Laura and fiance Harvey are worried that the stamp duty holiday ending will mean they have to cough up £3,500 (Picture: Laura Timmins)

Laura Timmins, a designer from Manchester, thought she would have plenty of time to sell her house and buy another before the stamp duty holiday ran out.

However, backlogs and delays have meant that the whole process has taken far longer, and now she is worried she will have to pay an extra £3,500 if the exemption is not extended.

‘We managed to buy our last house in around a month,’ Laura, 30, explains. ‘But when we talked to our solicitors in January, they estimated that this time it would take until June. I wasn’t expecting that at all.’

Although Laura has worked hard to keep on top of the paperwork required to make the sale and purchase go as fast as possible, there are still documents outstanding, and she is worried she will miss out if the stamp duty holiday isn’t extended.

‘All of our equity is in the home we currently have, so the £3,500 we should be saving in stamp duty means everything to us,’ she says. ‘I google “stamp duty” every few hours to see if anything has changed!’

What home buyers should do now

If you are already in the middle of buying a home and hope to benefit from the holiday, it makes sense to keep trying to complete the transaction as quickly as possible, even if the deadline is extended.

Ensuring you have all of your own documents ready, including ID to complete anti money-laundering checks, will speed things up. You should also complete all documentation quickly when it is sent to you.

If you’re hoping to take advantage of an extended holiday after the Budget, you will need to be realistic. Although Sam Mitchell, CEO of online estate agent Strike, says an extension will ‘no doubt encourage new buyers and sellers to the market who will then feel pressured to move within a certain timeline’, the current delays mean that these timescales look very tight.

Anything you can do to arrange a mortgage in advance will help to speed up the process, but you will also have to be realistic about the likelihood of being able to benefit from the holiday.

‘Considering property transactions are taking longer to complete, if there is no gradual phasing introduced, buyers entering the market now will need to be prepared to pay stamp duty,’ says Iain McKenzie, CEO of The Guild of Property Professionals.
First-time buyers may find that they do not have to pay stamp duty anyway. If you are a first-time buyer, you do not have to pay stamp duty on properties under £300,000, and you pay it at three per cent on £300,000 to £500,000.

Getting the best mortgage deal will also help you to save money, even if you are not able to benefit from the stamp duty holiday. The table below shows some of the best deals available at the moment. Those with 40% equity in their property can find deals as low as 1.24% fixed for two years.

‘Buyers are still keen to move and less concerned about the stamp duty relief than many would have thought, realising they are either too late to take advantage of it, or happy to swallow up the extra fees in order to buy their dream home, especially as mortgage rates remain low,’ says Tomer Aboody, director of MT Finance.

The best mortgage deals right now

For remortgaging

For first-time buyers

Fixed rates

Longer term fixes (five years and over)

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