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Is the property market hanging by a thread as the stamp duty holiday ends?

Is the property market hanging by a thread as the stamp duty holiday ends?

Property sales that are worth £1.5 billion are at risk of collapsing unless the Chancellor can be persuaded to extend the stamp duty holiday.The stagg

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Property sales that are worth £1.5 billion are at risk of collapsing unless the Chancellor can be persuaded to extend the stamp duty holiday.

The staggering sum represents two-thirds of buyers nationwide who are in a chain where someone is dependent on completion before the March 31 deadline, according to lender Paragon.

Rightmove says about 100,000 buyers face shock tax bills because they will miss the cut off, with some estimates suggesting one in five deals will collapse as a result.

Deal breaker: Property sales that are worth £1.5 billion are at risk of collapsing unless the Chancellor can be persuaded to extend the stamp duty holiday

Deal breaker: Property sales that are worth £1.5 billion are at risk of collapsing unless the Chancellor can be persuaded to extend the stamp duty holiday

Deal breaker: Property sales that are worth £1.5 billion are at risk of collapsing unless the Chancellor can be persuaded to extend the stamp duty holiday

It has led to calls for a six-month extension. A petition has gathered more than 100,000 signatures and prompted a parliamentary debate.

But estimates suggest this could cost the taxpayer an extra £2.5 billion — on top of the £3.8 billion the Treasury costed for the initial break. Sceptics also say talk of a ‘cliff edge’ is exaggerated and that funds would be better directed elsewhere.

Today, Money Mail asks what Chancellor Rishi Sunak should, and could, do.

A MUCH-NEEDED BOOST TO BRITAIN’S ECONOMY

The stamp duty holiday announced on July 8 increased the threshold at which buyers pay tax on property purchases from £125,000 to £500,000, offering savings of up to £15,000. The threshold was raised to £250,000 in Scotland and Wales.

It sparked a period of frenzied activity in the housing market, with average prices hitting record highs of £230,920 at the end of last year.

The number of transactions rose by 72 per cent in the three months after the break was announced. But there are already signs that the market is slowing as the deadline approaches.

Last month, house prices fell for the first time in six months, according to Nationwide. And a Royal Institution of Chartered Surveyors (RICS) survey found buyer inquiries fell sharply too.

One argument for extending the stamp duty holiday is the boost it would give the wider economy. Lucian Cook, of estate agents Savills, says there is a stronger case for this now than when the holiday was announced last summer.

He adds: ‘At the time the break was introduced, the first green shoots of recovery in the housing market were already in evidence. But the holiday is due to end at the same time unemployment is expected to peak.

‘It is a bad time to create a cliff edge.’

This follows a similar logic to extending the furlough scheme — that support measures should be maintained until the vaccine rollout has taken effect and lockdown restrictions are lifted, allowing the economy to recover.

Rightmove says around 100,000 buyers will have to pay shock tax bills because they will miss the cut off, with some estimates suggesting one in five deals will collapse as a result

Rightmove says around 100,000 buyers will have to pay shock tax bills because they will miss the cut off, with some estimates suggesting one in five deals will collapse as a result

Rightmove says around 100,000 buyers will have to pay shock tax bills because they will miss the cut off, with some estimates suggesting one in five deals will collapse as a result

TAX CUT THAT HELPS THE WEALTHY

the stamp duty policy has come under fire for helping those who need it least. It offers the greatest savings to those buying the most expensive properties. Second-home purchases leapt by 59 per cent last year.

However, it provides little help for first-time buyers struggling to raise a deposit or get a mortgage. 

In fact, it has helped push up prices by about £15,000 — wiping out the maximum saving and eclipsing the average tax reduction of £2,493, according to property platform Twindig.

The average deposit put down by a first-time buyer in 2020 rose by £11,000 to £57,000, Halifax found.

Twindig estimates that the break cost the taxman £1.4 billion in the second half of last year, the equivalent of homeowners paying £50 each to subsidise homebuyers.

Many think the tax cut has done its job and now others are in need of assistance. ‘The market doesn’t need the stimulus,’ says buying agent Henry Pryor. ‘I can think of several far more deserving causes, starting with those people living in buildings with cladding.’

CLIFF EDGE OR SOFT LANDING?

But TV property expert Phil Spencer, who is backing the Mail’s campaign to end the cladding scandal, says the fairness of the stamp duty holiday is irrelevant.

What matters now is managing its withdrawal, he adds. The Location, Location, Location presenter advocates a phased approach which could see the Chancellor reduce the savings on offer month-by-month to avoid shock tax bills.

He says: ‘My hope and expectation is that there will be some kind of tapering.’

That may avoid alarming predictions coming true that one in five deals could collapse if the deadline is missed.

In January, house prices fell for the first time in six months, according to Nationwide. A survey by the Royal Institution of Chartered Surveyors revealed buyer inquiries fell sharply last month

In January, house prices fell for the first time in six months, according to Nationwide. A survey by the Royal Institution of Chartered Surveyors revealed buyer inquiries fell sharply last month

In January, house prices fell for the first time in six months, according to Nationwide. A survey by the Royal Institution of Chartered Surveyors revealed buyer inquiries fell sharply last month

Spencer also sympathises with those who have faced delays through no fault of their own.

Karen Preston made an offer on a one-bedroom buy-to-let flat in Chichester, West Sussex, for £155,000, just eight days after the Chancellor announced the tax break.

It was chain-free and Karen was told the seller wanted a quick sale. Her offer was accepted, but six months on, the deal is still not complete. 

The 44-year-old, who is seven months pregnant, blames the ‘sluggish’ response of her seller’s solicitors, Advantage Property Lawyers (APL).

Karen, who lives in Chichester with partner Trevor Adams, 54, is now struggling to get the deal over the line in time to meet the stamp duty holiday deadline as conveyancers battle a backlog of more than 600,000 transactions.

Karen adds: ‘It has caused a massive amount of stress for me and my family.’

APL has declined to comment.

Others say the idea of a ‘cliff edge’ is overblown and the market will remain resilient.

Rightmove’s report on Monday contradicted the RICS survey by showing the number of new buyers is still growing, with demand outstripping supply and pushing up prices.

Rightmove said the number of visits to its website were 45 per cent higher last month than the same time last year. 

Tim Bannister, Rightmove director of property data, says: ‘These are strong signs that new buyer demand is not facing a cliff edge after March 31’.

Experts have also poured cold water on the idea that the end of the holiday could spark an abnormally high fall-through rate.

Most believe deals will be renegotiated rather than ditched. The most pessimistic forecasters predict a 5 per cent drop in prices by the end of 2021, but Lucian Cook hopes values will start to recover in the summer.

CHANCELLOR IS LEAVING IT LATE

If Mr Sunak does announce a stamp duty extension, he will leave it to the last minute. If he caves in too early, the industry will lose motivation to clear the backlog before the end of March.

The National Association of Estate Agents has called for a six-month extension, but the Chancellor is thought to be reluctant due to the ‘gratuitous’ cost to the taxpayer. He is, though, said to be considering a six-week cushion to avoid sales collapsing.

Rightmove estimates that a six- week extension could benefit up to 160,000 transactions, saving buyers about £1 billion.

The Government has already extended the deadline to purchase a home under the current Help to Buy scheme in England until the end of May after Covid-related delays put more than 16,000 sales at risk.

Jeremy Leaf, a North London estate agent and former Rics chairman, says Mr Sunak may follow this blueprint.

‘Ideally, help would be targeted at those who’ve lost out through no fault of their own and not allow speculators to jump in and take advantage,’ he adds. ‘But what is fair is not always feasible.’

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This post first appeared on Dailymail.co.uk

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