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Why homebuyers could miss out on stamp duty savings

The rush to take advantage of the tax break ahead of the March deadline is causing a bottleneck in housing completions, prompting the industry to push for an extension
Why homebuyers could miss out on stamp duty savings
  • Home purchase completion times are rising as the industry struggles to cope with surging demand
  • The industry is lobbying for an extension to the 31 March stamp duty deadline
  • Mortgage lenders are increasing rates to manage applications

The UK housing market has defied lockdown predictions since restrictions were eased thanks to the release of pent-up demand and July’s stamp duty break. Record levels of sales agreed since July has meant there are 50 per cent more homes progressing through the sales system than this time last year, according to data from Zoopla. Furious demand pushed up UK sales prices by 3 per cent in September, the highest annual growth rate in almost two and a half years, data from the property portal revealed.  

Yet the government may have shot itself in the foot by unleashing a short-term tax break to stave off a market slump. As buyers have flooded the market in an attempt to beat the 31 March deadline for various stamp duty and land taxation relief across the four home nations, estate agencies, conveyancers and lenders are struggling to cope with the surge in demand. That has led to longer lead times for deals to complete, leaving some buyers at risk of missing out on potential savings. 

A survey of industry participants by Legal & General Mortgage Club found that an average home buying timeline could be up to 15 weeks, or up to 17 weeks for buyers with more complex requirements, such as an impaired credit history. Those thinking of moving need to start their search by 1 November to gain tax savings, the mortgage club said. Additional layers of underwriting, delayed valuations and the challenges associated with homeworking have compounded the capacity crunch for lenders in writing offers, caused by heightened demand. 

“A vanilla case, someone on PAYE, with a 20 to 30 per cent deposit, typically would have gone straight through without touching the sides, in eight, nine, 10 working days,” says Craig Hall, head of broker relationships and propositions at Legal & General Mortgage Club. Even that process can be taking up to six weeks, according to brokers. 

That has led mortgage lenders to increase rates across the loan-to-value product spectrum in order to manage applications. While the average interest rate on a two-year fixed mortgage for 95 and 90 per cent loan-to-value products rose markedly at the start of July, according to data provider Moneyfacts, those attached to products with loan-to-values at between 65 and 85 per cent recorded the largest monthly jump in October. The average rate attached to a two-year fixed rate mortgage across all loan-to-values had risen to 2.38 per cent by the start of October, up from 1.99 per cent at the start of July. 

Yet while rates have risen, some lenders have temporarily removed products altogether to balance demand. Clydesdale and Yorkshire Bank last month withdrew a range of residential and buy-to-let products, before reintroducing them to the market three weeks later. 

“As a consequence of certain lenders coming in and out of the market, this means that others are dealing with much higher volumes than initially anticipated,” says Mortgage Advice Bureau’s (MAB1) head of lending, Brian Murphy. Therefore, some lenders have taken action to make products less attractive which is why customers might see some rates creeping up either when using comparison sites or through broker only deals, he adds. 

Pressure spreads

Yet the strain of additional demand is being felt across the board. Lloyd Davies, operations director at the Conveyancing Association and managing director at one of the UK’s largest specialist conveyancing firms, ConveyLaw, said that conveyancers were typically now dealing with more than 100 cases each, above a pre-pandemic norm of between 50 and 70. Local authorities are also taking longer to return land and area searches as they struggle with an increased workload, Mr Davies says. 

He has been forced to turn business away. “It’s going to be a bunfight trying to get everyone in before the end of March,” he says. “Anything that’s coming in now is pretty tight to that deadline.” The Society of Licensed Conveyancers has joined with others in the property industry as part of the Home Buying and Selling Group in this week writing to the chancellor to extend the March 31 deadline in order to allow the industry to catch-up. 

The true extent of the pressure on the industry may have not yet become truly apparent. “We’ll see the real impact over the course of the next three months,” says Mr Davies. 

That is a sentiment backed-up by data from Hamptons International. It revealed that the average number of days to exchange on a home rose by only a week to 94 days in October, according to the estate agency. Yet this figure does not show what has happened to the homes that have not yet exchanged, says head of research, Aneisha Beveridge. “Also worth bearing in mind [is] that these homes were sold over 3 months ago, when capacity through the sales process wasn’t such an issue,” she says. 

A better indicator of the capacity constraints that have emerged may be to look at the proportion of sales agreed that actually exchanged within three months since the tax break was introduced, Ms Beveridge argues. In July, that was just 34 per cent, down from 50 per cent the same month last year. 

That the industry has not taken on more staff to cater to increased demand is hardly surprising. “It's quite hard for companies to fill that resource, particularly at a time when people are being particularly cautious about next year,” says Ms Beveridge. 

False hope?

There is the risk that would-be homebuyers pull out of transactions if the chance of them exchanging on the property by the stamp duty deadline starts to diminish. Even in a typical year, almost a fifth of sales agreed in December would fail to complete by the end of March, rising to 46 per cent in January and 83 per cent in February, according to data from Zoopla.

If the lure of stamp duty savings starts to wane in the coming months, it may compound the impact of a less generous job retention scheme and rising unemployment, which threaten to weigh on transaction levels. That is not to mention the impact of tier three lockdown restrictions that could deter home viewings and moves. 

The Financial Conduct Authority has guided that banks should provide “tailored support” to borrowers facing financial difficulties once the application period for payment holidays - and moratorium on repossessions - comes to an end on 31 October. That could limit the extent of forced sales - which would weigh on house prices - at least in the coming months. Yet with lenders anticipating a quarter-on-quarter rise in defaults during the final three months of the year, according to the most recent Bank of England credit conditions survey, the size of - and rates attached to - mortgage offers could become less generous. 

It is little wonder that 12-month expectations for sales moved deeper into negative territory in September, with a net 34 per cent of surveyors anticipating a decline in volumes compared with 17 per cent in August, according to the most recent residential survey from the Royal Institution of Chartered Surveyors. So while house price indices flash green, there are signs that the economic consequences of lockdown may bite sooner than anticipated for the market.