Will house prices drop as the stamp duty relief ends?

MILLIONS of Brits are in a race against time to bag a home and save thousands before the stamp duty holiday ends.

Tax on the first £500,000 of a home purchase has been scrapped until June 30.

The relief means Brits could save up to £15,000 if they complete their transaction before the deadline.

It has meant a raft of opportunistic homebuyers have flooded the market to cash in on the saving.

But Covid has meant less homes are being put up for sale, leading experts to estimate Britain could have no homes left on the market within two months.

This means a boom in demand coupled with a lack of property available to buy has caused house prices to soar.

According to Rightmove, house prices have jumped almost £7,000 in the last month to an all-time high of £327,797.

It marks just the second time over the past five years that prices have increased by over 2% in a month.

But prices drop after the stamp duty holiday ends? We spoke to property experts to see what will happen:

Will house prices drop after the stamp duty holiday ends?

House prices might seem sky-high at the moment, but some experts think they’ll drop off once the stamp duty holiday ends. 

The Centre for Economics and Business Research predicts that property prices will tumble 14% by the end of this year.

What is stamp duty?

STAMP duty land tax (SDLT) is a lump sum payment anyone buying a property or piece of land over a certain price has to pay.

Up until July 8 2020, most house-buyers in England and Northern Ireland had to pay stamp duty on properties over £125,000.

This was temporarily increased to £500,000 until March 31, 2021 in the government's mini-Budget in July 2020.

The Chancellor extended the help until September 2021 in his Spring Budget.

The holiday will last in full until June, before being reduced to £250,000 from July.

The rate a buyer has to fork out varies depending on the price and type of property.

Rates are different depending on whether it is residential, a second home or buy-to-let, or whether you're a first-time buyer.

The usual system in England for residential properties means:

  • First-time buyers pay nothing on properties below £300,000 (and relief available on properties of up to £500,000)
  • You pay nothing if the property costs below £125,000
  • You pay 2% if it is worth between £125,001 and £250,000
  • You pay 5% if between £250,001 and up to £925,000
  • You pay 10% if it is between £925,001 and £1.5million
  • You pay 12% on anything over £1.5million

For second homes or buy to let properties:

  • 3% on purchases up to 125,000
  • 5% on purchases between £125,001 and £250,000
  • 8% on purchases above £250,001 and £925,000
  • 13% on purchases above £925,001 and £1.5 million
  • 15% on purchases above £1.5 million

Stamp duty rates are different in Scotland and Wales.

Other experts agree that prices will tumble after the tax relief ends, like Pure Property Finance head of specialist mortgages Chris Evans.

He said appetite for new homes will “dampen slightly” in the second half of the year and cause house prices to drop.

Once restrictions lift and workers can return to the office from June at the earliest, demand for homes could drop further, Chris said.

This is because Brits will most likely be working from home less, and therefore the need for upsizing homes won't be as urgent.

Quilter mortgage expert Karen Noye agrees a “correction” in house prices could happen after the stamp duty holiday ends.

But she said the government’s new 95% mortgage guarantee scheme, may “hot prices up further” before they cool down.

This scheme will see the government back mortgages for first-time buyers with a deposit of just 5% on homes worth as much as £600,000.

But some experts think house prices will stay the same – even after the stamp duty holiday ends.

Zoopla head of research Gráinne Gilmore said demand for new homes was rising even before the stamp duty holiday was announced in last year’s ‘mini budget’ in July.

“While the stamp duty holiday has certainly boosted demand, we have seen elevated numbers of buyers in the market since the end of the first lockdown driven by families reassessing how and where they want to live,” she said.

The Guild of Property Professionals chiefs executive Iain McKenzie is sceptical about whether we’ll see a significant fall in house prices.

“If anything, the past year has proven that the housing market is resilient and people have a desire to move," he said.

Should I buy now before the stamp duty ends?

If you’re lucky enough to be in a position to buy, you might be tempted to act quick and bag a deal before the deadline.

But experts have warned that even if you get your offer accepted right now, you still might miss the June 30 deadline.

The Covid crisis has stilted the homebuying process, meaning the average time it now takes for Brits to complete their sales is up 6% compared to this time last year.

Trussle head of mortgages Miles Robinson warned it’s “unlikely” that Brits buying a home now will complete in time to save thousands.

“It now takes on average 134 days to complete on a property purchase in the UK, so we’d advise that all buyers factor this in and are prepared to pay for stamp duty if they miss the 31st March deadline,” he said. 

You could get also get hooked into a bidding war for the home you want as demand for homes soar.

This means the money you could save through the stamp duty holiday could be cancelled out, Spring chief executive Cormac Henderson said.

“In some areas intense competition means prices are being pushed up to the extent that potential stamp duty savings are being eroded, so some buyers might not actually be any better off by rushing to purchase now,” he said. 

New 5% deposit mortgages have been launched by leading banks including Natwest and Barclays as part of the government's 95% mortgage scheme.

Lenders pulled almost all of these types of mortgage deals when the coronavirus crisis hit last year as they were seen as too risky.

We explain how to find the best mortgage for you, including lenders offering "no deposit" loans.

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