After intense speculation all week about a potential stamp duty holiday for residential property purchases, the detail was confirmed when the Chancellor Rishi Sunak delivered his Covid19 mini budget statement. The temporary stamp duty cuts took effect immediately and will last until the 31st March 2021.
Like all such holidays and tax cuts, it was a bitter pill for anyone who has completed their house purchase in the last couple of weeks or during lockdown. Life and taxes are rarely fair and up until a week or two back, none of us really saw this major giveaway coming. But it is here, the details are explained below, and we take a look at what it is likely to mean for the Island property market in the months ahead.
Until July 8th, all house-buyers in England and Northern Ireland had to pay stamp duty on properties over £125,000. The rate a buyer has to fork out varies depending on the price of the property and whether they are a first time buyer, a home mover or an investor.
The usual stamp duty system in England for residential properties applies different rates of stamp duty to the purchase price in ‘bands’. The rate of duty rises in each band. So before the Chancellors holiday announcement, the tax bands looked like this:
- First-time buyers previously paid nothing on properties below £300,000 (and got some added relief when they buy a property priced above £300,000 up to a maximum of £500,000)
- Second time buyers paid nothing if the property costs below £125,000
- then paid 2 per cent of the price band between £125,001 and £250,000
- 5 per cent between £250,001 and up to £925,000
- 10 per cent between £925,001 and £1.5million
- and a whopping 12 per cent on anything over £1.5million
Investors and second home buyers paid an extra 3% above these rates, effectively getting two bills – the basic ‘core’ rate of charge plus the surcharge. That was very painful and made the top rate a whopping 15%. However, the new ‘core’ temporary stamp duty rates apply to everyone purchasing a residential property in England and they mean some big savings.
The new lower core rates until 31st March 2021 are:
|Property Value||Stamp Duty Rate|
|Up to £500,000||Zero|
|The next £425,000 (the portion from £500,001 to £925,000)||5%|
|The next £575,000 (the portion from £925,001 to £1.5 million)||10%|
|The remaining amount (the portion above £1.5 million)||12%|
Investors buying Buy to Let’s and second home buyers will still pay the 3% surcharge but the good news is they will benefit from the new lower core stamp duty rates.
Here are a couple of examples of the savings:
- Family moving home and buying at £375,000. Stamp duty bill at the old rate = £8750. Now £0 = saving £8750!
- Investor buying at £250,000. Stamp duty bill at the old rate = £10,000. Now £7,500 = saving £2,500!
What will this mean for the Island Market?
We have been here before with previous stamp duty holidays and changes, and there is no doubt that this initiative will bring forward house sales which would otherwise have happened later in 2021 and beyond. The effect is less marked for first time buyers, who previously paid no stamp duty anyway up to £300,000 purchase price. But for families, movers from the mainland, investors and second home buyers this really is an opportunity to save tax that is unlikely to come along again any time soon. It seems more probable that taxes will rise in years to come to pay off the Covid Government debts, rather than fall.
The effect of more short term demand is almost inevitably a firming up of prices, especially for the most sought after properties in the best roads and the nicest neighbourhoods. We can’t see a price boom, but some short term rises look certain. The market might see some fall back after March 2021 as that demand falls away and the market experiences some months of lower demand and lower sales volume. Overall it is a neutral outcome for prices over 2020/21 as a whole, but in the short term it could be a great chance to sell.
Banks will be under pressure to lend to families and second time movers who usually have equity in their homes and are exactly the type of clients that banks like. Mortgages are cheap but not plentiful for first time buyers. Investors look likely to move in and dominate the lower end of the market, increasing the rental stock of flats and 2 bedroom houses in particular.
The bigger Island properties can be slow sellers, but the biggest stamp duty savings come with the higher price homes. A buyer of a second home at £500,000 will save £15,000 in stamp duty. This is coupled with the post Covid wave of city buyers looking to move out and secure a rural property with space for an office and a decent garden. So we also see this being a short, but boom time for the £500,000+ price bracket Island sellers – providing the buyer can sell their London or Home Counties pad first.
One word of warning. The 31st March will come around all too quickly. The cut off is absolute. If you haven’t completed your purchase by 31st March then the lower stamp duty rates will not apply. This is going to make the month of March, and the last week of March in particular, an absolute scramble and carnage will ensue. Solicitors will be under huge pressure to cut corners and just get the deal done. They don’t like doing that and can’t do so if there is a mortgage involved. So our advice is don’t delay if you want to get moving under this stamp duty holiday. Start looking now.
Which brings me to number one of “Special Agents Trigg’s secret top selling tips”:
TIP 1 – Don’t “Find First”
When you are ready to move it’s always tempting to try and find your next property before you sell your current home. That’s the wrong approach.
You won’t be taken seriously as a buyer if you haven’t sold your own house or have it on the market – essentially you are not in a position to proceed. Consequently, you may well end up having to pay the full asking price for the house you want to buy and may well end up taking an offer on your own sale. The worst of all worlds and it could cost you £thousands.
Get your own property on the market and find a buyer. Then go and bag a bargain!Agent Trigg tells it as it is.
So why not start the ball rolling with a valuation of your current home from one of our expert valuers? You might be pleasantly surprised by what we have to say.
Book online or give us a call.
We have been fully back in the office and open since 18th May and it has been very busy these last few weeks. It’s about to get busier still. All ‘Team Trigg’ holiday is cancelled with immediate effect!
We will take April 2021 off instead.