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Stamp Duty Schemes

It’s 2021. A year full of hopes and dreams for a return to some sense of normality. The last year, as we all know, turned the world upside down in every single aspect, with retail, businesses, education, hospitality, and life as we know it drawing to a standstill. With life on hold and everyone trying to adjust to the “new normal”, various industries have crashed and burned. However, the case for the property market is quite the opposite, it has been revitalised with the introduction of government schemes. Whether the impacts are positive or negative is yet to be seen, as there is uncertainty surrounding the market’s future.

Purchasing a property is, of course, not a decision to be taken lightly. It requires careful consideration, planning, decision making and time to find the perfect residence and property for you.

In the days of summer 2020 that now feel like a lifetime ago, Chancellor of the Exchequer Rishi Sunak, introduced a stamp duty ‘holiday’.

Stamp duty is a tax payable to the government when buying a residential property, that is charged as a percentage of the purchase price. The holiday has essentially resulted in a temporary increase in the threshold for stamp duty to £500,000, and that has created a new opportunity for buyers to save up to £15,000 in tax.

Property buyers have leapt at the market excitedly and eagerly, trying to get their hands on properties and close their deals before this holiday ends on Sun 30 June 2021 and is tapered until September 2021. With time ticking and the market thriving, property purchases and demand have surged. Property has been one of the only booming markets on the block in the last twelve months.

Richard Brook, of Eastbourne’s Open House Estate Agents, described the situation for the local property market in the last year: “the local property has drastically changed in Eastbourne and surrounds, as we are dealing with large numbers of people moving down from London and surrounding areas. Many of these buyers no longer want to be in London, nor do they need to be in London.”

It appears that the coastal area of Sussex has proven to be a hit with busy Londoners following lockdown.

Alongside the stamp duty holiday, the government has recently announced another government scheme which appears to act as an incentive to encourage and drive further property purchases. As described on gov.uk, the scheme “will help first time buyers or current homeowners secure a mortgage with just a 5% deposit to buy a house of up to £600,000 – providing an affordable route to home ownership for aspiring home-owners.”

The move to introduce the scheme could perhaps show the concerns of the market crashing following the end of the stamp duty holiday and has been added as a lifeline to keep the market alive.

Members of the government appear to be very supportive of the move, including Housing Secretary, Robert Jenrick, who said on the government website, “despite the challenges faced over the past year, the government has intervened to protect jobs, support builders and buyers to keep the housing market healthy. Today’s 95% mortgages launch further strengthens our commitment to build back better from the pandemic.”

But what does an estate agent think? Richard Brook spoke about the impacts he believes the scheme will have for the local market. “I think the 5% deposit scheme may see some of our smaller properties sell better. A lot of the smaller properties have required such large deposits, that many buyers have chosen to save longer and make two moves in one, skipping the smaller property.”

At first hand, this 5% scheme seems be just what the market needs to keep it breathing and alive in the coming months. With larger scale unemployment across the country due to Covid, Rishi Sunak believes this mortgage scheme will also aid with this issue, as he commented on the government website: “by giving lenders the option of a government guarantee on 95% mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.”

Unemployment has been on the watch list for most, and this scheme only shouts positive news for everyone. Back in the winter months, the Office for National Statistics (ONS) estimated that the “UK unemployment rate, in the three months to November 2020, was estimated at 5.0%.” There is now hope for bringing this figure down slightly.

While the introduction of this further scheme is undoubtedly a positive thing for the market, the picture for buyers potentially appears more dismal because of the stamp duty holiday. Data published by the ONS shows that “pent-up demand may have contributed towards an increase in house prices,” and that stamp duty “may have allowed sellers to request higher prices as buyers’ overall costs are reduced.” So, have buyers been saving money?

The ONS states that “the average price of detached properties increased by 8.6% in the year to January 2021, in comparison with flats and maisonettes, which increased by 2.6% over the same period.” These statistics may suggest buyers have been spending more.

Keeping all these government schemes and incentives in mind, and given that this industry has had a starkly different experience than most others, what are the long-term impacts of stamp duty and the 5% mortgage scheme? Has the holiday stamped a done deal for the property market? Is the market going to crash like a tonne of bricks following the deadlines for said schemes? These are questions buyers are undoubtedly going to want to know.

Richard Brook provided his professional opinion on where he sees the market going: “I personally believe we will continue to see good activity and a strong market beyond the stamp duty holiday. Those fuelling the market will still be looking to move and will simply calculate the tax within their costs.”

The government’s choice to introduce multiple schemes is keeping the beating heart of the property market going. However, the question of what’s going to happen to the market in the future remains to be answered.

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