Why the government have got it wrong on Stamp Duty holiday
When the Government first announced a Stamp Duty holiday in July 2020, it seemed like the ideal solution to boost a market dealt a hammer blow by the first national lockdown and the shock of COVID-19. Transaction numbers plummeted between April and May 2020 as the housing market was forced to close completely.
So, when the Chancellor stepped in with his magic wand to inject the market with a solution in the form of a potential Stamp Duty Land Tax (SDLT) saving of thousands of pounds, it seemed like an answer to the prayers of the property industry.
Whilst the initiative was widely backed, both by the industry and buyers and sellers, it was perhaps unnecessary as “pent-up” transactions were about to fuel a wave of new property transactions.
This not unwelcome surge in business, combined with the additional pressures of remote working in a pandemic and the further lockdowns, led to average property transaction timelines stretching from 12 weeks to 16 to 20 weeks as the industry struggled to cope with the backlog of old transactions and the surge of new transactions.
Fast forward a year as we approach the end of the SDLT extension to that original July 2020 to March 2021 SDLT holiday, and the property market is in a state of frenzy.
Along with many others in the conveyancing industry, we have seen unprecedented levels of business in the last few months, peaking with record figures in March, taking us 30% above average for the last 12 months.
Buyers had rushed to complete transactions before the original end of the SDLT holiday on 31 March, 2021 and fresh buyers, alert to the last-minute opportunity to save some money by moving now, had jumped into the marketplace.
This, of course, was not entirely unforeseeable. As an industry, we have campaigned for some time to further extend the SDLT holiday to ensure our clients obtain the benefits of these tax savings and to prevent a myriad of aborted transactions – the dreaded “cliff edge”. The Spring Budget, which appeared to throw a lifeline to those buyers struggling to complete by the original March deadline, may have done just that but I believe it has given false hope to anyone who may just have started their purchase transactions, with three months not long enough to complete their property transactions with the new average 16-week turnaround times.
The majority of first-time buyers and others clambering to take advantage of the stamp duty holiday benefits from March onwards simply would not have enough time to complete their transactions by the end of June. They may still have the benefit of some SDLT tapering relief until September but this may not be enough for many and may lead to a number of aborted transactions or renegotiated purchase prices in July.
I believe we will see a number of these aborted transactions and a property cooldown when we enter the summer months. None of us want to see a “boom and bust” in the property market, as property growth has always been a prerequisite for overall economic growth for the UK, which we desperately need to see continue as we come out of lockdown and emerge into the new “normal” – again!
“I believe we will see a number of these aborted transactions and a property cooldown when we enter the summer months”
The effects of the stamp duty holiday in boosting the market, combined with the real demographic shifts we are seeing driven by remote working and a desire for more space, are accelerating the market perhaps more than Mr Sunak might even have desired.
The latest Office for National Statistics Retail House Price Index figures for March revealed we are in the grip of record house price rises not seen since August 2007. I am sure anyone can remember will shudder at the thought of what happened in 2008 when property prices fell by 20% in just 16 months.
So what can we do? If we are to avoid the very real possibility of the property market falling off a cliff edge and many failed transactions, the Government needs to act now to abolish the tax altogether – unlikely – or bring in a much longer tapering effect.
All trade and professional bodies that I work with, including the Conveyancing Association and the Society of Licensed Conveyancers, are asking the Government to allow buyers who have agreed a deal on a property transaction by certain dates to benefit from the Stamp Duty benefit in place at that time.
This should perhaps be the start of March for the June SDLT deadline and the start of July for the September SDLT deadline – effectively to carry through whichever Stamp Duty benefit is in place at the time.
Buyers should then be given 12 months to complete the transaction and enjoy the financial advantage of the Stamp Duty holiday which the government led them to believe was achievable and which the Chancellor has budgeted for.
I genuinely believe that if we do not see the Government act, the market is in danger of nosediving when buyers can no longer afford to purchase without the SDLT savings.
It is apparent, however, that there is sufficient interest in the property industry now, with supply outstripping demand, easier mortgage lending, government-backed first-time buyer mortgages and great mortgage products, that would mean the current house price rises could continue for some time to come.
I do not advocate the government constantly adjusting stamp duty to raise taxable income as this causes chronic increases in house prices and unnecessary pressures on the consumer and professionals in the property industry.
There are calls for a new annual tax on houses as opposed to on property transfers, which would create similar revenue for the government. Any such changes would be welcome for those entering the property market and would perhaps ensure a buoyant and consistent property market moving forward, without the constant, unnecessary and difficult SDLT changes that we have endured for decades.
The Treasury have indicated that they will not act to bring in any further tapering. I urge them to rethink this course of action.
The ramifications if they don’t could go far beyond the disappointment of thousands of house buyers and that is something the UK Plc simply cannot afford to countenance.
Lloyd Davies is MD of Convey Law, operations director of The Conveyancing Association, and deputy chairman of the Society of Licensed Conveyancers.