Who Benefits From The Stamp Duty Holiday?

Expectations that Chancellor Rishi Sunak will announce a Stamp Duty holiday later today as part of his mini-budget are not only high but near cast in concrete. The plans potentially involve raising the Stamp Duty threshold at which buyers start to pay the levy from its current £125,000 up to £500,000 – as originally reported The Times.

Such a change could not come at a more opportune time either, as although the property market has displayed increased activity in the months since restrictions were lifted in May, there are signs that a plateau is drawing near as pent-up demand starts to decline.

I have been arguing for changes to the Stamp Duty Land Tax (SDLT) for quite some time – either in the form of a temporary holiday or removing the levy entirely – as the benefits impacting positively on the housing market could be myriad; encouraging both upsizing and downsizing for home buyers, whilst also helping to boost housebuilding, albeit with the caveat that construction firms know they could add a small percentage to the property price. But for all the optimism that this expected announcement is stirring up, there is some caution to bear in mind now the rumour mill is in full swing.

With every announcement there is a pertinent danger that expectations and plans are built around the effects of any financial changes. It is not yet clear whether a Stamp Duty holiday, if it manifests, will come into effect immediately or after the Autumn Statement later this year. The implication of this is that if the changes do not come into force until later, buyers are more likely to hold off from their purchases until the change comes through, plunging the market back into a deep freeze for the coming months. The danger I fear with this mini-budget is that it is only a preamble before any decisions come into effect during the traditional Autumn Budget, and this uncertainty does little more than fuel paralysis on what is still a cautious and slowly easing market.

Now assuming the plans hold true and a Stamp Duty holiday does come into effect today, it must also be accompanied with benefits that improve the circumstances of first-time buyers. Late last month a hammer blow was felled on those at the bottom rung of the market when most of the country’s leading lenders removed their 90-95% loan-to-value mortgage products, stifling their ability to buy unless they could front a minimum 15% deposit in most cases. Currently first-time buyers qualify for relief on Stamp Duty up to £300,000, and then 5% on the portion from £300,001 to £500,000 – with buyers of any properties valued over £500,000 liable for the full taxation rules.

If the holiday as rumoured comes into effect, first-time buyers would therefore likely be exempt from the 5% portion on SDLT between £300,001 to £500,000. But with the loss of almost 90% of the high LTV mortgage market many buyers will struggle to get on the ladder even with the holiday. What may help is to bridge the holiday with a temporary, or even long-term reopening of the Help to Buy scheme – closed to new applicants as of November 2019. If the construction sector is rebounding as quickly as the latest IHS Markit / CIPS Construction PMI report (published July 6) suggests then there could be more new-builds on the horizon with 46% of surveyed builders noting an increase in activity in June. Reopening the Help to Buy scheme and indeed extending it both to new applicants and those in the resell market would go some way towards bolstering sales in the property market. The positive upshoot of this is that if the banks start to see healthy sustainability in the housing market, they will be more likely to restore their higher LTV mortgage range if their fears of negative equity start to subside, which would further help first-time buyers get on the ladder.

This would certainly help at the lower end of the market, but should the Chancellor go further and raise the cap from which buyers start to pay above the £500,000 threshold? There is a strong basis for this in the short term, particularly during these unprecedented times.

Whilst undoubtably the Treasury is looking forward to the billions in Stamp Duty revenue generated each year by the property industry – hence their early reopening of the market – it will do no good if stagnation moves in and the market fails to progress transactions. Indeed, the latest data report from Coadjute going up to June 27 shows that sales enquiries are down 1% and properties registered for sale have declined by 3%.

For the economy to pick up, the government needs to encourage confidence in consumer markets; a healthy housing market is usually a good barometer and if it is perceived positively could promote further spending in the economy, particularly while the government gauges how much fiscal stimulus is required. Raising the Stamp Duty minimum threshold above £500,000, even as a temporary measure, would encourage a wider number of buyers looking for their next home to enter the market.

Of course, this all rests on the Chancellor’s announcement later today – and much as with many a rumour, most require hot air to fly. But on this occasion, I am optimistic as the rumoured move resonates with the trends we’re seeing, making it just the right action at the right time.