On the 8th July 2020 the Chancellor announced a temporary stamp duty holiday for homebuyers in England and Northern Ireland.
This means you have until early 2021 to complete your purchase and take advantage of this tax duty exemption.
A temporary stamp duty holiday is welcome but there are other factors to also consider so let’s look at what this means for homebuyers.
A petition to extend the stamp duty holiday reached over 120,000 signatures – and therefore will now be debated in parliament. It’s been confirmed this debate is going ahead on 1st February.
It’s unclear what the outcome will be at this point, though our own Phil Spencer has expressed views that to not extend it would be ‘catastrophic’ for the housing market.
What is stamp duty and when is it paid?
Stamp duty land tax (SDLT) is a tax a homebuyer is required to pay on a property or land in England and Northern Ireland.
From July 8th 2020 the threshold for STDL is changing temporarily.
What has changed?
The threshold when you are required to pay stamp duty on a residential property has been raised from £125,000 to £500,000.
The temporary rate reductions are as follows:
|Property Purchase Price||Stamp duty rate (% of purchase price)|
|Up to £500,000||Zero|
|The next £425,000 (the portion from £500,001 to £925,000)||5%|
|The next £575,000 (the portion from £925,001 to £1.5 million)||10%|
|The remaining amount (the portion above £1.5 million)||12%|
These new rates will apply whether you are buying your first home or have owner a property before.
How long will the stamp duty holiday last?
The stamp duty rate adjustments became effective on 8th July 2020. They will end on the 31st March 2021 – unless it’s extended.
The government has since updated its stamp duty calculator to reflect these temporary changes.
Who does this help?
The Chancellor said 9 out of 10 homebuyers would not pay any stamp duty during this period.
I’ve always thought stamp duty was an unnecessarily cruel tax on first-time buyers. So this is great news for those who would have been facing this expense.
Those buying more expensive properties will also only be taxed on the value above that amount. This could save those homebuyers as much as £15,000, if they are buying a property at or above £500,000.
The stamp duty holiday also benefits buyers of second homes and buy-to-let properties. They will now just pay the 3% up to £500,000.
What about mortgage availability?
I support a stamp duty holiday to give the housing market a boost at an all-important time. It does, however, have a limited impact for those hoping to secure a mortgage with a 95% – 90% loan to value (LTV) which are not currently available.
While there is some lending at 90% LTV these mortgage offers are rather few and far between.
At Move iQ we hear a constant plea from homebuyers for these mortgage rates to return.
We expect this will become a major debate between borrowers, lenders, and the regulatory controls introduced to monitor lending criteria as we move forwards.
If you’re unclear what loan to value mortgage interest rates means then read our guide.
Why are there lending challenges?
The 95% LTV mortgage is likely to pose a greater credit risk for a lender. This will become even more apparent when the government job retention scheme comes to an end in October.
As and when these mortgages do return an individual’s job type is likely to become an additional criterion for lenders to consider.
Why? Lenders are duty bound through regulation to make sure any lending can be honoured now and in the future.
For example, if you work for the NHS you are likely to be considered to have a secure job. However, if you are self-employed or a contractor then your job security maybe considered more ‘at risk’.
The lack of 95% mortgages may therefore become more of a longer-term concern.
There is lobbying underway for government backing for these mortgage products. Although it has been muted that while some lenders may have an appetite it may be subdued due to the long-term risk issue.
What about house prices?
As things stand today – prices are holding up. As I have said in previous blogs until the furlough and mortgage holiday schemes conclude it is not possible to assess the realities. People’s finances, employment situations, and general sentiment will all be impacted.
All of these are the issues that will affect house prices over the next couple of years.
Predications and guesswork will continue but no one has a crystal ball.
Move home or stay put?
Life goes on, we all need to live somewhere, we still have a housing shortage and therefore greater demand than supply.
If you are in a position to buy and save a few pounds, then great but only spend what you can realistically afford and at a price you believe to be worth it to you at that time.
Getting yourself prepared and organised to take advantage of a stamp duty holiday is more relevant than ever. So, whether you’re buying a house or selling one be sure to download one of my free home mover toolkits to guide through each vital step.
However, if you’re forced by circumstance to put your moving plans on hold then this is the right thing to do.
There may be turbulent times ahead but there will be light at the end of the tunnel.
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