Sadly, all holidays must come to end, even those involving tax breaks. As we draw near to the 30th September, and therefore the end of the stamp duty holiday, we wanted to understand what this means for the market.
From the 1st October, stamp duty will return to its pre-pandemic levels. This consisted of no stamp duty on the first £125,000 (or the first £300,000 for first-time buyers), then brackets of varying levels, which are detailed below.
|Property value||Stamp duty rate|
|Up to £125,000||0%|
|The portion between £125,001 and £250,000||2%|
|£250,001 and £925,000||5%|
|£925,001 and £1.5 million||10%|
|Above £1.5 million||12%|
N.B. These figures are for England and Northern Ireland only. There are different rates in Wales – Land Transaction Tax (LTT) and Scotland – Land & Buildings Transaction Tax (LBTT).
There are different charges for those purchasing buy-to-lets or second homes.
To gain an insight into what the end of the stamp duty holiday means for the housing market, we asked one of our mortgage advisers, Bev Shaw, to fill us in.
What will happen to house prices after stamp duty returns to its pre-pandemic rates?
The current demand is pushing house prices up, but I don’t feel this will continue. Surveyors are being cautious and it’s likely demand will slow down, having a knock-on effect on house prices. The stamp duty discount won’t make a huge difference at this point as anything coming to the market now won’t benefit. The lockdowns we’ve experienced have made people evaluate how they feel regarding properties with no or limited outdoor space, and so I would expect the demand on small houses will be high for a while yet.
How will first-time buyers be affected by the end of the stamp duty holiday?
Unless planning to buy a property worth over £300,000, first-time buyers will remain largely unaffected by the stamp duty break coming to an end, as they will still benefit from the threshold that exists. For anything over £300,000, the rates in the table will apply. I touched on it above but I believe the demand on smaller properties with some outdoor space is going to be greater, as those that perhaps would have considered apartments before the pandemic, may now hold out to save more or borrow from the Bank of Mum and Dad to buy a house instead.
With many new developments tending not to build these smaller in-demand properties, I see the second-hand market continuing as it is now: high demand equalling higher prices.
What can we expect to see happen to interest rates?
Interest rates for the smaller deposit mortgages were inflamed during the pandemic due to demand but thankfully they have started to reduce to a more manageable level. Those with a low loan to value, large deposit or equity within their property will benefit from the lowest interest rates we have seen for many years. I don’t think interest rates will jump up as some expect; more that they will remain at the level they currently are for a while yet. Subsequently, for the lower loan to value rates, I don’t believe that they can go much lower. It’s certainly worth having a mortgage review as things are very different now to how they were a year ago.