Desperate times call for desperate measures. The COVID19 pandemic called for the government to take strong actions. One of those actions was the Stamp Duty holiday. Now that it has been in place for six months, its impact can be assessed. In short, people can now ask whether or not it was (and still is) a good idea.
The housing market since March 2020
Lockdown one was horrendous news for just about every sector of the UK’s economy. The property sector was particularly hard hit. Spring is the property market’s “festive season”. It’s when buyers shake off their winter slumbers and start house-hunting. There is generally a lull in summer followed by an uplift in autumn and then winter hibernation.
It would have been bad enough if lockdown one had lasted three weeks as originally announced. Instead, however, it dragged on until July. If the property market had followed its usual cycle, the property market could have had a six-month slump. Instead, the government stepped in with the Stamp Duty holiday.
Since then, overall, the only way has been up. According to data from the Halifax, house prices in March 2021 were 6.5% higher than in March 2020. To put that in figures, the average house has gone from costing £239,176 to costing £254,606. That’s an increase of almost £1.3K per month over the last 12 months.
The impact of the Stamp Duty holiday
The Stamp Duty holiday still has another 6 months to run (of which three will be at a reduced discount). It’s therefore too early even to attempt a full cost/benefit analysis. It’s also impossible to know what would have happened if the Chancellor hadn’t offered the tax break.
The housing market could have gone into a six-month downturn but then picked up again in autumn as usual. That said, lockdown two and tiered restrictions might have made this more difficult. Without any unusual motivation, buyers might just have decided to wait out both COVID19 and Brexit and reassess at a later date.
If that had happened, it could have serious repercussions for the housing market. With minimal buyer demand, sellers would have faced the prospect of lengthy sales times and/or lower sales prices. A slowdown in the property market would, of course, have impacted everyone connected with it and that’s a lot of people.
The real estate sector is not just a major source of direct employment. It also generates significant activity in many other sectors. In fact, during the lockdown, home-related businesses which were able to keep going did great business as people worked on improving their homes.
So was the Stamp Duty holiday really a good idea?
Perhaps it would be fair to say that the Stamp Duty holiday was, in principle, a good idea. It just wasn’t implemented as well as it could have been. For example, the Chancellor could have tapered the relief according to the price of the home. He could also have offered some sort of extra benefit to first-time buyers so that they kept an advantage over onward movers.
He could also have based the relief on the exchange date rather than the completion date. Admittedly, he would probably have had to put some kind of deadline on completion. This could, however, have been made fairly generous to allow for COVID19-related delays.
This last point would have helped to avoid buyers finding themselves pushed towards a “cliff-edge”. The government has now lengthened the journey to the edge and made the landing slightly smoother. At the end of the day, however, buyers are still going to be looking at two fairly steep tax changes coming up in 2021.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage