Homebuyers to enjoy an extended holiday

Those buyers who were beginning to get hyper stressed about completing their purchase before the end of the Stamp Duty Land Tax (SDLT) holiday on 31 March can now breathe a sigh of (temporary) relief.

The rumours that the holiday would be extended to 30 June have proved to be true with Rishi Sunak formally announcing this in today’s budget.

When the SDLT holiday was announced back in July 2020 it was designed to prevent a predicted fall in the housing market despite there having been a bounce-back in sales when lockdown was eased in May 2020 and estate agents were able to open again.

Economists have commentated that it is the first time in history that the housing market has boomed at the same time that the country has faced a severe economic recession.  According to Knight Frank the annual UK house price growth as at February 2021 was 6.9%.  The boom is not just due to the SDLT holiday but also due to a mass reassessment of housing needs.  Price growth for rural properties in some areas has exceeded the annual growth average whereas inner city flats with no outside space are unlikely to have done.

The maximum discount currently available to buyers is £15,000.  Many buyers feared that the log-jam of delayed transactions caused by factors such as long chains and delays in mortgage approvals due to the high volume of applications from borrowers taking advantage of historic low interest rates would prevent them from benefitting from the discount.  And therefore sellers feared that come 1 April 2021 prices would fall by up to £15,000 to make up for the lost discount.

The extension until 30 June is designed to prevent this cliff edge of price falls and abortive transactions and will take the heat out of the market whilst avoiding its collapse.  Whether it leads to three months of frenetic buying remains to be seen.  That alone could annihilate any saving in SDLT by pushing up prices by much more than the amount of saving.

First and second time buyers

Buyers at the lower end of the market who stood to gain most from the SDLT holiday will be particularly glad of its extension as it will enable more people struggling to get on the housing ladder to step on to the first rung or step onto the second rung of the ladder.

Many of those buyers will also be encouraged by Sunak’s announcement that the Government would guarantee a proportion of loans on homes worth up to £600,000.  This is not limited to first time buyers.  This is likely to lead to an increase in lending at higher loan to value ratios with the introduction of a new mortgage guarantee scheme.  For the first time since the 2008 crash buyers with just 5% deposits will have many more loan products available to them and at historically low interest rates.

Overall today’s budget brings good news for buyers in particular those at the lower end of the market and is part of the Government’s commitment to increasing home ownership.

Non UK resident buyers

That continuing commitment means that there is no good news in today’s budget for non UK resident buyers.  From 1 April they will still face paying an additional 2% SDLT surcharge for purchases of residential properties in England and Wales.

The rules are quite complex and there are separate rules for residential and commercial properties although the writer has not considered those for the latter.  The residence test for individuals in terms of days spent in the UK is different from those applied for other taxes.  Nationality and domicility are not taken into account.  A buyer may be resident for income tax purposes but not for SDLT purposes.  Individuals who are married to and buy jointly with UK resident spouses are not prejudiced by their own non-resident status.  Whilst the wider housing market will not be overly affected by the new surcharge it will have quite an effect on those markets that attract overseas buyers such as the Prime Central London market which economists predict will sustain a yet another bruise from the constant and hard battering from SDLT rises over the last decade.

If you wish to discuss any issues raised in this blog, please contact Rosie McCormick Paice or any member of our Residential Property team.

Please also view our Tax team response to the Budget.

If you aren’t receiving our legal updates directly to your mailbox, please sign up now