The surge in activity and prices in the UK property market in the second half of 2020 were driven, to a large degree, by the Stamp Duty Land Tax (SDLT) holiday introduced on 8 July 2020. This raised the tax-free threshold on residential property purchases from £125,000 to £500,000. At the upper limit, this resulted in a £15,000 saving for property buyers.
The scheme is currently due to expire on 31 March 2021 but the government has been under pressure to extend it, a public petition having garnered more than 150,000 signatures by mid-February. The government has been steadfast in its view that the scheme would terminate on the scheduled date but the Chancellor is now reported to be considering a six-week extension to prevent tens of thousands of potential home buyers ‘falling off a financial cliff edge’. Any change to the scheme is likely to be announced in the Chancellor's budget statement on 3 March.
Zoopla estimates that approximately 740,000 buyers who agreed sales between May and December 2020 have either already locked in the stamp duty saving or will do so before the March deadline. The BBC reports that the nine-month scheme will cost the Treasury £3.8bn. A six-week extension would provide an additional 120,000-160,000 buyers with the opportunity to complete at an aggregate saving of £1bn.
The primary issue that protagonists of extending the deadline are focused upon is the potential for hundreds of thousands of buyers who have already agreed sales to miss out on the stamp duty savings. Rightmove estimates that 100,000 buyers who agreed to a purchase last year are set to miss out whilst Zoopla forecasts a more conservative 70,000. To put these numbers in perspective, prior to the 3rd national lockdown more than 536,000 agreed sales had progressed to completion yet 420,000 agreed sales from 2020 were yet to complete according to Rightmove.
The problem is that the average transaction is taking 20 weeks to complete, a significant increase on the 12 weeks pre-pandemic. The delays are being caused by the sheer volume of transactions and the challenge of remote working in lockdown. The major bottlenecks are in the conveyancing and mortgage application processes.
Calls for the holiday to be made permanent or for the tax to be scrapped completely need to be viewed in the context that Treasury collects £12bn per annum from SDLT which represents 2% of total government revenues. With the government budget deeply in deficit, that is simply not going to happen. Whilst this six-week extension would occur too late for new buyers to take advantage of it there are concerns that it will further heat up the market and lead to a bigger hangover when it winds up.
For this reason, there is support amongst some MPs and industry players for a tapered end to the scheme to be introduced. This would allow people who had already reached a certain stage in the home buying process to complete their sale inclusive of the stamp duty saving.
As documented in our annual review, the stamp duty holiday and furlough scheme that put a floor under employment numbers have been instrumental in not just protecting the property market from a sharp correction but in creating the buoyant circumstances of the past year. The challenge for government is how to wean the broader economy and the property market in particular off these stimuli without precipitating a hangover.