WHY LOSING £12.5K IN STAMP DUTY SAVINGS WILL NOT HIT ENGLANDS ROARING HOUSE PRICES

Monday July 5, 2021

In January, estate agents warned of a cliff edge. Now, the market is so hot nobody seems to care the tax break is tapering.

 

The booming property market is about to take an imminent hit. Home buyers in higher price brackets who cannot complete purchases by June 30 will face sudden extra stamp duty charges of up to £12,500, as the extended tax holiday tapers.

Property website Zoopla has estimated that 53,500 buyers missed out on tax savings. But this is just a sixth of the 325,000 forecast by data company TwentyCi in January ahead of the anticipated March cut off.

Unlike at the beginning of the year, when agents warned of an imminent cliff edge ahead of the original deadline and a collapse in sales, the market now looks as if it simply does not care.

JLL property advisors has forecast that there will be 420,000 sales in the UK this summer with a total value of £107bn. This will be a 55pc jump on the five-year average and the highest grossing three month period in history.

How has the role of the stamp duty holiday changed?

At the beginning of the year, the outlook was bleak. The country was in lockdown and the coronavirus death rate was high. The stamp duty holiday was originally supposed to end in March, which would coincide with the end of the furlough scheme, mortgage support, and an anticipated spike in unemployment.

Aneisha Beveridge, of Hamptons estate agents, said: “The original timing of the end of the stamp duty holiday in March just felt like the end of the world. But talk of a cliff edge has faded away.”

She added: “I don’t think the end of the stamp duty holiday will now be half as much of an issue for the market as it would have been if it had ended as planned in March.”

Dominic Agace, of Winkworth estate agents, said that the extended deadline and well-publicised conveyancing timescales means that buyers and sellers have contingency plans in place.

Mr Agace said: “All these factors and the underlying strength of activity mean we don’t expect to see the dramatic effects of fall throughs. That may well have been the case at the end of March and the first deadline.”

The stamp duty holiday in its current form, with a nil-rate band of £500,000, had spurred activity most in the £350,000 to £750,000 price bracket, according to data from analytics group TwentyCi. Buyers of these properties benefit from the maximum saving to house price ratio. As the nil-rate band drops to £250,000 from July 1, this benefit will be concentrated at the lower end of the market.

But analysts argue that there will continue to be demand for these more expensive properties. Ms Beveridge said: “The market has been taken over by lifestyle decisions, which have detracted from the financial side.”

The market is being moved by the many buyers who want to upsize and move out of cities to purchase larger homes with gardens, especially as employers shift to a hybrid working from home approach.

Positivity is booming

Consumer confidence and positive sentiment are also boosting the market. The furlough scheme has been extended to September, and the successful vaccine rollout means the economic forecasts have improved dramatically.

Nick Whitten, of JLL, said: “It is amazing what sentiment does for the market; it is the secret sauce that drives the market overall. We are about to enter a 21st century version of the roaring twenties, that is going to make people want to get out and buy.”

Tom Bill, of Knight Frank estate agents, added: “The positive economic data plays a part, but there is also the human level, people are getting their jabs.”

Grainne Gilmore, of Zoopla, said the new availability of low deposit mortgages, in the wake of the Government-guaranteed 95pc mortgages that launched in April, has brought a wave of first-time buyers back to the market. “They represent pure demand, as they are not bringing any supply into the pool when they purchase and move.”

The market in Scotland gives an indication of how much buyers now care about tax savings. Its own less generous tax break ended as planned on March 31. ONS data shows that annual house price growth slowed from 11.7pc in March to 6.3pc in April.

But agents report no material change in demand. Morton Simpson, of Thorntons estate agents in Dundee said: “Since the tax has come back it hasn’t made any difference. We’ve not seen any kind of drop whatsoever, even at the high end.”

Data from TwentyCi showed that the number of sales agreed in Scotland in April was actually marginally higher than in March.

The supply of homes for sale cannot keep up with demand

The property market is suffering from a crippling lack of listings. In the period from the start of January to May 16, the supply of homes for sale was 20.8pc lower than the 2020 average, according to Zoopla. The flow of new supply to the market was down 1.9pc.

If buyers miss the stamp duty holiday, they will have no bargaining power to renegotiate prices as there are simply not enough properties for sale.

There are signs this imbalance could ease. Knight Frank found that in the first eight weeks of 2021, market appraisals were at their lowest level in six years. In the following 11 weeks, however, appraisals hit their highest level in the same period.

Comparison site Reallymoving reported a 10pc drop in conveyancing quote volumes in May. But demand levels are still exceptionally high. Any increase in supply would need to be fundamental to bring down property prices.

Competition is so fierce that gazumping, when a seller accepts another higher offer after a sale has been agreed, now accounts for 38pc of fall throughs, according to a survey of homemovers by website comparethemarket.com.

According to analysis by Andrew Wishart at Capital Economics consultants, London and the South East would need respective 12.5pc and 5pc jumps in supply to match the same number of homes per capita as in the North. “In London, that equates to a step change of 450,000 homes, or 14 years of construction at recent homebuilding rates,” said Mr Wishart.

The market will still slow

The pace of the market cannot be maintained at its current level, said Mr Whitten. “House prices are growing at an unsustainable rate. There will be a cooling-off.” JLL has forecast that growth rates will slow to 5pc by the end of the year.

Mr Bill added that after the stamp duty deadline, “deals will fall off, but there will still be enough frustrated buyer demand to keep transactions high”.

Though values are massively inflated, record low interest rates mean that for many the property market is underpinned by affordability.

Analysis by Capital Economics found that the share of income that homeowners need to pay their mortgage costs has not changed significantly in the last few years, and it is massively less than in the pre-financial crisis years. The bigger incoming shock for the property market will now be the future of interest rates.