- The rise in Budget day demand was strongest for houses priced at between £250,000 and £500,000
- Yet some prospective buyers will miss out on securing savings due to the capacity constraints on the industry
The stamp duty extension has caused a spike in demand among prospective buyers despite many being unlikely to complete in time to benefit fully from potential savings.
Properties priced at between £250,000 and £500,000 saw the largest increase in leads per listing on Budget day, which were 45 per cent higher than the previous seven-day average, according to property portal Zoopla.
The chancellor announced in this month’s Budget that the stamp duty holiday for purchases up to a value of £500,000 would be extended until the end of June. The nil rate threshold will then fall to £250,000 over the three months to September, before returning to £125,000 in October. The changes apply to England and Northern Ireland.
Yet the continuing capacity squeeze on the property industry means some of those looking to purchase a home above £250,000, who are not yet underway with their search, will likely miss out on securing the full savings available. However, completing before the threshold returns to £125,000 would still generate a - lesser - saving on the tax bill.
“People really have got to be agreeing deals in the next two or three weeks at least,” said Richard Donnell, director of research at Zoopla.
Under normal market conditions it takes on average around 90 days from agreeing a purchase to getting the keys, he said. That process is taking around four months at present.
Overall demand was 34 per cent higher across England on the day the extension was confirmed, according to Zoopla, with the West Midlands, the South West and London experiencing the largest uptick.
Lower average house prices outside London mean buyers in those markets stand more chance of paying no stamp duty if they can complete by September. Based upon the average house price in the capital - £496,000 in December, according to the Office for National Statistics - those completing during the three months to September would still need to stump up almost £7,500 in stamp duty. More affordable geographies also stand to benefit more from the mortgage guarantee scheme due to the constraints on how much buyers can borrow against their income.
Given that properties valued at up to £250,000 accounted for half of all sales last year, according to Zoopla, the boost to transactions should continue to support house price growth over the coming months, Donnell argued. “The probability of house prices falling gets even lower,” he said.
Belvoir Lettings, which focuses on markets outside London, has also experienced an increase in interest in recent days, according to chief executive Dorian Gonsalves. The estate agency entered March with the number of homes sold subject to contract at record levels.
“Stock availability will be the next talking point,” said Gonsalves. “If that stock starts to fall then ultimately that will push prices up.”
The annual rate of house price growth slowed to 5.2 per cent in February, according to the Halifax house price index, ahead of the initial tax holiday deadline. That was down from 5.4 per cent in January and a peak of 7.6 per cent in November after the first wave of the virus. The question remains whether a new cliff-edge has been created at the end of September, which will precipitate a more substantial slowdown in house price appreciation.
The “double cliff-edge” should lessen the impact, argued Donnell. “I don’t think people anywhere could believe how the pandemic has unlocked demand for housing,” he said. It is not just the tax break that has provided the boost, he argued, but also pent-up demand after the 2019 general election and existing homeowners reappraising their living situations.
The pandemic has instigated activity among people searching for more space both indoors and outside, said Dominic Agace, chief executive at estate agency Winkworth (WINK). Continuing demand indicates that people are still willing to press on with transactions even if they missed the initial deadline, he argued.
“The demand in February was not driven by people looking to buy a property to take advantage of the saving,” said Agace. Nevertheless, Winkworth’s website recorded a 15 per cent rise in traffic on Budget day, compared with the same day the week before.
The government plans to publish a number of consultations on tax policy on March 23 - those considering a house purchase will be eager to see if that includes stamp duty reform.