House price boom wipes out Stamp Duty savings 30x over!

Recent figures show that booming house prices effectively wiped out Stamp Duty savings 30 times over. Kate Anderson investigates.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

estate agent welcoming a couple to house viewing

Image source: Getty Images

The Stamp Duty holiday had buyers flooding the housing market, hoping to save themselves thousands of pounds. However, over the past year, house prices have risen at a record pace. So much so, that in some areas, Stamp Duty savings have been wiped out 30 times over.

So was it worth it? Let’s investigate.

[top_pitch]

What happened to house prices?

The Stamp Duty holiday was introduced to give the housing market a boost following the first lockdown. When Covid-19 hit, viewings stopped, estate agents closed and the whole market ground to a halt.

In stepped Rishi Sunak, who introduced a nil-rate Stamp Duty band from £125,000 to £500,000 in England and Northern Ireland. This meant that buyers who bought homes worth up to £500,000 by 30 June 2021 saved up to £15,000.

Yet, in some areas of the country, house prices have climbed so high in the past 12 months that it has made this saving irrelevant.

According to stats from Hamptons estate agents, in Stoke-on-Trent, house prices rose by 18%. The result is that the average home in the area is now worth £20,590 more than it was last year. This is 28 times more than the average local Stamp Duty holiday saving.

This situation was repeated across the country. In two-thirds of local authorities, house price rises were at least triple Stamp Duty savings.

Was the Stamp Duty holiday worth it?

Whether the Stamp Duty holiday was considered a success or not depends on who you ask.

The housing market was hot property (pun intended) for most of this year. The holiday encouraged people to move who maybe wouldn’t have previously. It also meant that in some areas of the country, where house prices had previously flatlined, prices started to climb.

However, it wasn’t good news for everyone. The Stamp Duty holiday drove prices to record levels. While this benefitted those already on the property ladder, it penalised first-time buyers.

The irony is that first-time buyers already had their own Stamp Duty break pre-pandemic, but the new tax holiday took away that bargaining chip. Then, increased house prices meant that saving up a big enough deposit became that much harder.

And these latest figures show that those who bought during the Stamp Duty holiday did not save as much as they might have, because they had to contend with higher house prices.

[middle_pitch]

What does this mean for the future?

While experts are forecasting that house prices will cool, they are unlikely to drop by any meaningful amount. The end of the Stamp Duty holiday and the furlough scheme will likely dampen buyer demand, but overall house price growth is expected to remain in positive territory.

But now, buyers don’t have the benefit of the Stamp Duty holiday. So they are facing having to pay a premium for a new home, which means a larger deposit and a larger mortgage

But it’s not all bad news. If you are saving up to buy a home, there are government schemes in place to help you. And one of them is a Lifetime ISA.

If you are aged between 18 and 39, you can use a Lifetime ISA to save for your first home. You can put up to £4,000 a year into the ISA and receive a 25% bonus from the government, up to a maximum of £1,000. You can open one at a bank or building society, or with an investing solutions provider.

The future for buyers looks challenging. High house prices, the return of standard Stamp Duty thresholds and low supply all present a problem. But that doesn’t mean it’s hopeless. Mortgage rates are still at historic lows and there are government schemes around to help you out.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

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