The Stamp Duty Holiday introduced in July 2020 saw an increase in property sales in Britain. Rishi Sunak, the Exchequer Chancellor, introduced the waiver to help mitigate the effect of COVID-19 on the housing sector. If you buy a property below the £500,000 threshold within the period, the Stamp Duty Holiday will not apply. More houses fell within the tax bracket, leading to increased purchases. Buyers saved up to £15,000 in this tax holiday.
Pre-COVID-19 Land Stamp Duty Rates
The government levied taxes on every land sale above £125,000. Sales between £125,001 and £250,000 attracted a 2% tax, while £250,001 to £925,000 surrendered 5% to the exchequer. Large scale purchases between £925,001 and £1.5 million pay 10% of the total cost as tax, while any sale above £1.5 million pays 12%.
The First Lockdown
When COVID-19 hit Britain during the first lockdown, house sales were at an all-time low since 2016. The incentive saw a rise in transactions, a trend that persisted throughout 2020. House buyers capitalised on this offer, which returned the property market to profitable ways, albeit for a fixed period. The surging demand pushed sellers to increase the price by 1.2% per month, a factor that changed the market dynamics. However, sellers were careful not to exceed the value above the tax holiday threshold as it will beat the purpose.
The Tax Holiday Period
From July 8th 2020, when the holiday came to effect, the sector witnessed significant growth in sales and revenue. Monies held by buyers was diverted to other uses, which improved money circulation in the economy. The initial plan was to lift the waiver from April 1st 2021, but the government hope to extend it until the end of June 2021. Buyers and sellers have until then to utilise the waiver.
Possible Scenarios After the End of the Land Stamp Duty Holiday
The government will revert to the land stamp duty tax as it was before the pandemic. However, there will be discounts for a certain period before the rates take effect. Such an approach will affect the property market significantly. House prices will go back to pre-COVID rates. With little money in circulation, the market will slow down, taking the sector back to COVID-19 era struggles. Nationwide House Price Index statistics already show decreased sales volume from 7.3% in December to 6.4%.
In light of decreased demand, prices have started going down. Nationwide House Index predicts a 0.3% monthly, with the lowest recorded month being January 2021. As money supply dips, banks will scale down mortgage financing, further reducing the sales projections as 2021 progresses.
Compared to the first lockdown, the housing sector will not shut down completely. Sellers will still list their properties, but sales will be slower. Transactions might take longer, which will effectively eat into the processing timelines. The whole process takes at least 12 weeks, and if it falls out of the waiver period, buyers will pay the Stamp Duty. It will form the basis from which the government will review the Land Stamp Duty Holiday forward.
The idea to prolong the waiver gained momentum from the public, who requested an extension to complete their transactions. Over 325,000 buyers are in the process, and if the waiver extension is not considered, the transactions will be expensive. They have the backing of at least 140,000 petitioners and hope that the government will extend the waiver to complete their transactions. However, the government is considering the appeal on the backdrop of the run-down effect of the extension and the amount it is willing to forgo.
The government and the property sector is closely looking at the international market for lessons. Paris witnessed the same growth rate but had no property policy like Britain. The exchequer chancellor, national treasury and industry players will learn from such studies and create a suitable policy to guide the housing sector moving forward.
The budget estimates during the budget reading will give the answers to these questions. It will give the chancellor the perfect time to delve into it and give the direction. However, Britons are hopeful that he will extend the tax holiday and give the housing sector a much-needed boost.
