In the midst of the COVID pandemic, the housing market was amongst many of the different markets which started to suffer. To help kickstart it into action, July 2020 saw the start of something new – a ‘Stamp Duty Holiday’.
This holiday allowed house buyers to not pay a single penny in Stamp Duty on houses up to £500,000. However, from 1st July 2021 onwards the threshold reduced to £250,000 and this is going to come to an end, with the last day of this holiday being tomorrow…
What is going to happen and what does this mean for the future of the housing market and the many buyers who have been aided by this holiday?
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What is Stamp Duty and the Stamp Duty Holiday?
Simply put, Stamp duty is a tax paid on property purchases and is the responsibility of the purchaser, not the seller.
The amount of Stamp Duty you pay depends upon the price of the property you’re buying. Pre-holiday, you would start to pay Stamp Duty on prices over £125,000, but this all changed when the holiday was introduced.
On the introduction of the holiday, this meant buyers didn’t need to pay any tax on their purchase on prices up to £500,000, meaning a MASSIVE saving of £15,000.
Naturally, this led to anyone considering selling their house to put it on the market, causing house prices to skyrocket, with ONS reporting an increase of 8.9%. House sales also went crazy, with sales rising by 15.6% in August 2020 and 21.3% in September 2020, according to Compare The Market.
In July 2021, the Stamp Duty nil-tax band was reduced from £500,000 to £250,000. This meant that the amount of Stamp Duty paid looked as follows:
- £0->£250,000 = 0%
- £250,001->£925,000 = 5%
- £925,001->£1,500,000 = 10%
- £1,500,000+ = 12%
However, tomorrow sees the end of these thresholds, bringing the end of the Stamp Duty Holiday and new tax rates. As of 1st October, the new tax brackets will be:
- £0->£125,000 = 0%
- £125,001->£250,000 = 2%
- £250,001->£925,000 = 5%
- £925,001->£1,500,000 = 10%
- £1,500,001+ = 12%
If you’re unsure on how much Stamp Duty you’re going to pay, you can use the government’s calculator to get a clearer idea.
Help for first-time buyers
There’s no doubt that the Stamp Duty Holiday presented a perfect opportunity for first-time buyers to get their foot on the housing ladder, with buying a house becoming more affordable with little to no Stamp Duty to pay.
However, as we face the end of the holiday, what does this mean for first-time buyers? What other help is there to help with the first big step onto the ladder?
Well, first-time buyers don’t have to pay any Stamp Duty on property purchases up to £300,000, even after the end of the holiday.
Also, high street lenders are offering mortgages to borrowers, with them only needing a deposit of 5%, half of the usual 10% deposit, further making it easier for first-time buyers to be able to purchase a house.
This scheme is actually available to anyone purchasing a property, providing the cost is under £600,000, and it’s not a buy-to-let property, second home or, in some situations, a new build.
What does this mean for the future of the housing market?
Whilst it’s difficult to predict the future of anything, it is thought that the end of the Stamp Duty Holiday will lead to a drop in property prices, with demand set to decrease, with buying a house becoming less affordable, due to buyers now needing to pay the tax.
October also brings the end of the furlough scheme, which will likely lead to job losses, further adding to the lack of demand for housing, as buying a house isn’t going to be the first thing on anyone’s mind.
On the other side, though, there is a lack of housing supply on the market, meaning any buyers out there are competing for a limited stock, which may mean that house prices may not drop as much as initially thought.
Whilst no one really knows what’s around the corner, it’s no surprise that the end of the Stamp Duty Holiday and furlough scheme is starting to put fear into people’s minds. What’s around the corner remains to be seen, it’s a matter of waiting and seeing…
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Millie is a perfectionist with a passion for property and writing articles. You’ll find her researching the latest housing trends and the newest up and coming areas worth investing in. Read more about Millie here.
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