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The stamp duty holiday in the UK

Who really benefits?

By Zeenat Moosa

, |

The stamp duty holiday in the UK

Who really benefits?

By Zeenat Moosa

, |

3 min read

In a bid to fuel much-needed movement in the property market, the UK government has raised the stamp duty threshold across the country, effective immediately. Until 31 March 2021, home buyers and investors in England and Northern Ireland only need to pay stamp duty on properties costing more than £500,000, rather than £300,000, saving them as much as £15,000.

Raising the stamp duty threshold

The move is across the board, and the intention is to encourage all areas of the market to get buying and stimulate the housing market. A strong housing market is usually a good indication that the market is progressing in the right direction, and it encourages consumer confidence, which in turn promotes further spending.

But closer inspection shows that the move will benefit some more than others.

No benefit for the lower end of the market in stamp duty holiday

First-time buyers seem to be the biggest losers yet again. They were already dealt a heavy blow in May 2020, when all but one of the country’s leading lenders removed their 5% and 10% deposit-option mortgages from the market. Even though some lenders are now bringing these back, most first-time buyers are being forced to relook their savings and see if they can muster up a minimum 15% deposit.

Most first-time buyers were generally exempt from the £300,000 stamp duty threshold anyway, as the average price for a first home in England starts at around the £200,000 mark. The stamp duty holiday will only really benefit first-time buyers purchasing pricier homes in more expensive areas, who will now not have to pay the 5% on the portion between £300,000 and £500,000.

For example, an average-priced first home in a leafy suburb of London costs about £420,000, meaning buyers will save about £6,000 on their stamp duty bill. However, with the loss of almost all the first-time-buyer-friendly mortgage incentives, most will probably feel priced out of the stamp duty raise and are unlikely to benefit from it at all.

Stamp duty holiday may help second steppers

Second steppers, or existing home owners wanting to move up the property ladder to more expensive homes, can really cash in on substantial savings. The UK’s leading property searching website, Rightmove, has already reported a 49% increase in enquiries on properties priced between £400,000 and £500,000. That’s because a home owner wanting to buy a £400,000 property will now save £10,000, while those purchasing homes for £500,000 will save £15,000.

The savings are great, but it is important to note that the stamp duty holiday is only temporary – available for the next eight months. We all know that buying and selling a home is a big investment and should not be done on a whim. However, the short stamp duty holiday may push home owners to do exactly that, forcing those not ready to sell and move on to hurry their plans before the cut-off at the end of March next year.

Stamp duty is great for investors

Arguably, the biggest winners are the buy-to-let investors, who, thanks to the stamp duty holiday, are now in a better position to qualify for a mortgage, as what they save on stamp duty can be used to inflate their deposit.

Landlords in England and Northern Ireland still need to pay the 3% surcharge, but can benefit from the raised threshold. Previously, an investor buying a £500,000 home would have needed to pay 3% on the first £125,000 (£3,750), 5% on the next £125,000 (£6,250) and 8% on the remaining £250,000 (£20,000), resulting in a stamp duty bill of £30,000. Now, though, they’ll only need to pay 3% on the entire £500,000 (£15,000), resulting in a saving of £15,000. The saving means that savvy investors are likely to expand their portfolios immediately, rather than waiting and then scrambling to try and close deals at the last minute.

Long-term effect of the stamp duty holiday

In theory, a stamp duty holiday sounds like a big win for everyone, but in reality, the main beneficiaries are actually wealthy buyers snapping up second homes, small-scale investment properties or even buying their million-pound mansion. Although first-time buyers can’t take advantage of the free-for-all just yet, experts suggest digging their heels in and waiting for some big gains come 1 April 2021, when the stamp duty holiday is over, and the market takes somewhat of a nosedive.

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