The stamp duty holiday, increasing the tax-free band from £125,000 to £500,000, means that homebuyers can save up to £15,000 – a very decent handout for anyone considering upsizing or getting on the property ladder.
The move was made because of worries about the sluggish property market during the coronavirus crisis. Rishi Sunak, the chancellor himself, pointed out that property sales have fallen off a cliff and we’ve had our first house price fall in eight years. Lockdown brought an entire lockdown to the property market and now worries about a massive looming recession mean people have cooled on the big financial commitment of moving house.
But I’ve heard anecdotally from people already who have been spurred into action by the stamp duty cut. However, the move to slash the tax doesn’t solve one of the big problems in the property market at the moment – the lack of mortgages for many buyers.
Now should be a great time to get a mortgage – with interest rates so low borrowing has never been cheaper. But mortgage companies, nervous about house price falls and how precarious many jobs may be, have tightened up like a clam.
Many have upped their minimum deposit levels, so where before you could borrow 95%, now many won’t go above 85% or 80%. This will particularly hit first-time buyers, who tend to have smaller deposits. Other mortgage companies have tightened their lending criteria, meaning the maximum they will lend based on your salary and expenses might now be tighter.
If you’ve got a decent deposit and a very solid credit record, with a decent salary and lots of disposable income, then you’re probably golden, but the property market can’t survive on those buyers alone.
Regional divide
There’s no doubt that the stamp duty break will provide a bigger incentive in already affluent areas of the UK. When you look at the average house price across England you see that those in areas such as the north-east or north-west will save a minimal amount under the new rules, while those in London and the south-east will benefit to the tune of thousands of pounds.
The average house in the north-east costs £126,945, according to Land Registry data, which means it’s only a whisker above the current stamp-duty-free limit of £125,000. It means the new system will only save those buyers £38 in stamp duty.
In comparison, the average house price in London is £485,794 – clearly far above the current stamp duty free limit. This means that someone buying at this average price will now save almost £14,300 in stamp duty. If you’re looking for an incentive to get out house-hunting and to buy your next property then a £14,000 giveaway is far more likely to propel you down the estate agents than saving £40.
This of course could have the unintended consequence of driving up competition and prices in the already pretty competitive markets of London and the south-east, while the more muted effect in some other regions means that they won’t rebound from the expected property slump quite as quickly. In short, it’s going to exacerbate the existing north-south property divide.
Laura Suter is personal finance analyst at AJ Bell