Illustration of first time buyers

The Chancellor’s Stamp Duty holiday initiative is valid until the end of March 2021. Anyone still wishing to take advantage of the benefits will need to start the house-hunting and buying process in the next few months if they want to complete before the deadline. As well as the timing issue, many house buyers will want to consider whether the offer is as attractive as it initially appears. In short – it looks good but is it good for you?

What are the details?

Until 31 March 2021, there is no Stamp Duty Land Tax payable on the purchase by an individual (it does not apply to companies) of a main property costing up to £500,000. If the property costs more than £500,000, Stamp Duty is calculated based on revised rate bands, as below. The rate only applies to the part of the price falling within each band.

Property price Stamp Duty rate
£0-£500,000 0%
£500,001-£925,000 5%
£925,001-£1.5 million 10%
Over £1.5 million 12%

Points to bear in mind

Like many of the schemes the Government has announced throughout the pandemic, the initiative was warmly received by many in the industry. It was seen as a welcome boost to keep the property market ticking over when the instinct of many house buyers might have been to sit tight. But it’s worth looking beyond the headlines if you want to consider whether it really benefits you. Here are some points to keep in mind.

Does it make financial sense?

The Stamp Duty holiday has been part of the reason for a surge in house sales but it’s a double-edged sword. Where it is increasing activity and driving up prices, this can also wipe out the potential Stamp Duty saving. If the house price has risen by more than the amount you’re potentially saving on Stamp Duty then the intended benefits are outweighed. Additionally, it’s important to be aware that in the event that a main residence is being purchased but the existing home is not being sold (what’s called a ‘Let-to-Buy’) you will have to pay the additional 3% which is applicable for additional properties.

Down-valuing and the effect on mortgages

In a climate where house prices are rapidly rising, we have seen instances where lenders’ valuations are down-valuing the property. This means the lender does not think the property is worth the asking price. The implications of this are that in some cases the mortgage may need to be re-arranged. For example, a specific loan-to-value product may become invalid as a result. Finding and reapplying for a new mortgage could stall or derail the house-buying process.

Take time into account

Don’t underestimate how long the house-buying process can take, or how unknowable this can actually be. The process can take anything from eight weeks to eight months, maybe more, maybe less if you’re very lucky. But it’s fair to expect that you might miss the deadline if you haven’t got a property at least in your sights by the end of the year.

Think well in advance

When thinking ahead, don’t just focus on the deadline of the end of March. While demand is strong now, come the end of 2020 it may well fall away as buyers potentially hold off for fear of missing the deadline themselves. Buyers would be wise to consider what implications this could have for the market and in turn their house-buying or selling plans.

For those in the right circumstances, the Stamp Duty holiday could bring welcome financial benefits but the advice for anyone tempted by the offer at this stage would be to think through the implications and scenarios to assess whether it is the right option for you.

If you would like conveyancing support, or help with arranging a mortgage for your property purchase, please get in touch.