Worried that you’ve missed the boat to claim your share of the stamp duty savings on buying a London property? Think again. The surge in buyer demand created by this government give-away has artificially inflated prices. What happens next? Read on and be in the know about where the market is headed.
The Stamp Duty Land Tax (SDLT) holiday is now in its transitional phase before winding up on 30 September. The scheme took effect on 8 July, 2020, providing up to £15,000 tax relief on a property purchase of £500,000. In the lead up to the original termination date of 31 March, property transactions in the first quarter increased appreciably.
There are several immutable truths about the mechanics of this fiscal stimulus initiative. Firstly, it has been of most benefit to those consumers buying higher value properties. Secondly, it triggered a ‘herd mentality’ rush to buy that the real-estate marketing machine capitalised upon. As a result, thirdly, it also precipitated a significant spike in prices across the UK as demand outstripped supply.
Therein lies the problem for many homebuyers. With an average 10% increase in prices year-on-year to March 2021, for many buyers the increase in price will have exceeded the value of the tax saving several times over. Not for the first time, some consumers will experience buyer’s remorse as they contemplate their financial position in the short to medium term.
With the scheme shortly due to expire there is industry consensus that there will be a contraction in demand and price growth will moderate. The question is by how much? The recent history of governments meddling with stamp duty changes hasn’t ended well. Preceding the 1988 changes, house prices boomed before falling more than 30% between 1989 and 1991. The experience of 2016 was not so dramatic but with other government economic stimulus measures also expiring in coming months there is understandable trepidation as to what comes next.
We noted above the dangers of the herd mentality in driving demand and prices higher. It would be wise to remember that the herd mentality of markets can also head in the opposite direction – creating opportunity for astute investors.
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