Budget 2021: Response For Property Industry
Rishi Sunak made two major announcements in his budget which were aimed at stimulating the housing market following the coronavirus (Covid-19) pandemic.
Stamp Duty Holiday
On the 8th July 2020 a temporary increase to the amount a purchaser would pay for a residential property before SDLT (Stamp Duty Land Tax) was due was announced. Under current legislation, no SDLT is paid on the first £125,000 of the cost of a residential property. The Stamp Duty Holiday increased the Nil Rate Band to £500,000 and was set to expire on 31 March 2021.
This holiday has now been extended to 30 June 2021. The Nil Rate Band will then be reduced to £250,000 until 30 September 2021 after which it will revert to £125,000.
The cut applies to any purchase of residential property but where an individual already owns a property an additional 3% is charged to each tier. Accordingly, for second homes purchased before 30 June 2021, the first £500,000 will attract SDLT at 3%. I have set these out on a table at the foot of this note.
According to the Chancellor, the cut in stamp duty saves buyers an average of £4,500 and “has helped hundreds of thousands of people buy a home and supported the economy at a critical time”. However, circumstantial evidence from estate agents is that property prices have in fact increased as vendors price in the savings.
It is worth noting that first-time buyers were already exempt from SDLT on properties valued up to £500,000 in London or £300,000 elsewhere and therefore this measure will have a limited impact on their ability to afford to buy. In fact, given that first time buyers are likely to be purchasing houses closer to the £300,000 range the savings generated by the reduction in SDLT are limited.
Those more likely to benefit are those who already own a home and are looking to move to something larger, however, as mentioned, if vendors are increasing prices, any savings may not be as significant.
Mortgage Guarantee Scheme
This leads us to the second measure announced. In the words of the Chancellor, “even with the stamp duty cut, there is still a significant barrier to people getting on the housing ladder – the cost of a deposit”.
To further help buyers and particularly first-time buyers, the government is introducing a mortgage guarantee scheme which will apply to all relevant mortgages taken out between April 2021 and December 2022. Buyers will only have to provide a 5% deposit and can fix their interest rate for up to 5 years. The scheme will apply to new or existing homes up to a value of £600,000. Lloyds, NatWest, Santander, Barclays and HSBC will be offering products from April 2021 with other lenders expected to launch mortgage products later in the year.
Interestingly the British Property Federation gave a muted response to this announcement. They note that the Help to Buy mortgage guarantee scheme which ended in 2016 inflated property prices. In their opinion “getting more people on the housing ladder will require supporting housing supply as well as demand”.
In conclusion, these measures do appear to support the government’s strategy to maintain confidence in the housing market. However, the extent to which this will benefit first-time buyers remains to be seen.
If you have any questions, please do not hesitate to get in touch.
SDLT Tiers for the period 08/07/2020 – 30/06/2021
| Only one property owned | More than one property owned |
So much as does not exceed £500,000 | 0% | 3% |
So much as exceeds £500,000 but does not exceed £925,000 | 5% | 8% |
So much as exceeds £925,000 but does not exceed £1,500,000 | 10% | 13% |
The remainder (if any) | 12% | 15% |
SDLT Tiers for the period 01/07/2021 – 30/09/2021
| Only one property owned | More than one property owned |
So much as does not exceed £250,000 | 0% | 3% |
So much as exceeds £250,000 but does not exceed £925,000 | 5% | 8% |
So much as exceeds £925,000 but does not exceed £1,500,000 | 10% | 13% |
The remainder (if any) | 12% | 15% |
SDLT Tiers from 01/10/2021
| Only one property owned | More than one property owned |
So much as does not exceed £125,000 | 0% | 3% |
So much as exceeds £125,000 but does not exceed £925,000 | 5% | 8% |
So much as exceeds £925,000 but does not exceed £1,500,000 | 10% | 13% |
The remainder (if any) | 12% | 15% |