In a move to boost and stimulate the housing market, the government has introduced a stamp duty holiday meaning that, as of the 8th of July 2020, the threshold for stamp duty tax was raised temporarily from £125,000 to £500,000.
While buying a home is one of life’s most exciting milestones, for many, the cost of stamp duty will add thousands to an already expensive purchase. But, there is some light at the end of the tunnel in the form of a stamp duty holiday. But, what is it? What does it mean for the UK housing market? And what does it mean for you? We explain all.
What is stamp duty?
Originally introduced in 1684 to raise government revenue, stamp duty land tax (SDLT) now applies to properties for sale that are located in England and Northern Ireland, but only applies to houses over a certain threshold. Before the stamp duty holiday announcement, the SDLT threshold was £125,000 for residential properties and £150,000 for non-residential properties or land for sale.
What is a stamp duty holiday and how does it work?
Introduced to combat the effects of the coronavirus pandemic on the housing market, a stamp duty tax holiday was granted by the Chancellor on the 8th July 2020, meaning that those in England and Northern Ireland purchasing homes won’t have to pay any tax on properties up to £500,000.
However, it’s important to note that properties that cost more than £500,000 will still pay stamp duty tax based on a percentage of their value above this amount.
Why do we need a stamp duty holiday and who will benefit the most?
With so many people furloughed or being made redundant due to the pandemic, the move is designed to help buyers who are suffering financially, boosting the struggling housing economy and accelerating industry productivity.
The immediate increase in the stamp duty threshold will help sustain the rebound in housing market activity across England. The benefits will be instant as nine out of 10 transactions in England will no longer be subject to the tax.Richard Donnell Zoopla’s Research and Insight Director
However, for first-time buyers or downsizers especially, unless you live in an area where house prices are much more expensive, such as London or Edinburgh, the stamp duty holiday won’t make much difference. In actual fact, for first-time buyers, it might be harder to get a mortgage approved because, in times of economic hardship and uncertainty, banks are less likely to lend to first time buyers as it is more of a risk, especially if they don’t have a large pot of savings.
What effect will the stamp duty holiday have on the current and future housing market?
While the full effects are still yet to be seen, there’s no doubt that the coronavirus pandemic has had a huge impact on the market. Research from Halifax shows that house prices have fallen for the fourth month in a row, while the Nationwide house price index reports that annual price growth ground to a halt in June, with prices down 0.1%.
However, according to Right Move’s house price index, since the start of July, year-on-year buyer enquiries in Britain are up by 75%, while the ‘average price of property coming to market is £320,265 this month, up by an average of 2.4% compared to March’ which is a great indicator of demand and proves that we’re now experiencing a mini-boom.
What will be the wider effect of the stamp duty holiday?
The holiday will have a huge impact on the wider construction industry, which is already becoming apparent. June saw the fastest rise in construction activity for nearly two years, with new orders stabilising after 3 months of sharp decline.
Similarly, purchasing activity expanded at the fastest rate since December 2015 meaning, for housebuilders and contractors the holiday aims to boost demand as homeowners will be able to afford more without the stamp duty tax.
Chancellor Rishi Sunak has estimated that the average stamp duty bill will fall by £4,500, with nearly nine out of 10 people buying a home this year paying no stamp duty at all, leaving people with either more disposable income or the extra funds to purchase more expensive housing, therefore putting more money back into the market.
A wider net of industries is also likely to be affected, such as self storage. The UK self storage annual report 2020 found that 32% of self storage customers in the UK were involved in moving house – proof that despite the pandemic, house purchases are still happening, and self storage is a useful commodity
While, for many buyers, the government’s advice during lockdown to only move “where reasonably necessary” meant that, for those left in limbo, self storage provided the perfect opportunity to store furniture, technology and household items. Similarly, the introduction of the stamp duty holiday may mean that people currently living in rented accommodation might now be able to afford a house sooner, and so moving into a smaller property for a short period of time in order to save could be a great idea to take advantage of while you can. 44% of those surveyed in the annual report stated that the lack of space was their most relevant reason for needing storage. So, if you’re downsizing to save money, why not speak to one of our experts and invest in a self storage unit until you’re ready to make your house purchase?
How much will I save?
While savings will depend entirely on the cost of the property you are purchasing, the changes can save homeowners up to £15,000. Want to find out how the new and old rates of stamp duty tax compare? Take a look below at this handy table from the BBC:
If you’re looking for somewhere to store your belongings while you move, we can help. From the size of lockers to the equivalent of a double garage, our self storage units offer flexible solutions – whether you’re downsizing, are decluttering your home in a bid to make it more attractive to buyers or are refurbishing before you move in. Get in touch with us now, or find your local self storage facility today, we even offer 24/7 access at most of our stores.