How mortgage rates, house prices and the Stamp Duty holiday made the perfect storm

The Stamp Duty holiday is over, house prices are at record highs and mortgage rates are rising. What can aspiring buyers do to make their moves a reality?

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There’s no doubt that the Stamp Duty holiday and low mortgage rates helped potential buyers get onto the property ladder affordably. But now that the tax break has ended, buyers have little to gain from the short-term measure. Low mortgage rates are also being pulled gradually – a sign that buying a home may become more challenging. Is there anything that buyers can do?


What do HMRC’s Stamp Duty tax figures reveal?

Brits in England paid a total of £10.2 billion in Stamp Duty from April 2021 to October 2021, up £4.1 billion (67%) from the same period a year earlier. And it’s clear that HMRC’s Stamp Duty figures for the tax year 2020 to 2021 were lower due to a drop in property sales following market uncertainties surrounding the pandemic and the Stamp Duty holiday.

Stamp duty figures started to rise in March 2021 as the property market strengthened alongside economic confidence following the announcement of lockdown easing and vaccine rollout.

A significant increase was also noted in June, July, September and October 2021. This can be explained by the considerable number of transactions completed in the rush to beat the Stamp Duty holiday deadline.

Sarah Coles, personal finance analyst Hargreaves Lansdown, explains, “The enormous jump in stamp duty this tax year demonstrates the impact of the stamp duty holiday. And while the taxman may be rubbing his hands in glee, buyers are more likely to be wringing theirs.”

We can expect these figures to continue to increase in the coming months. Buyers have resumed paying Stamp Duty tax at the standard threshold rate, meaning an added cost to already rising house prices.

Why could buying a home continue to become more challenging?

1. House prices are still high

Due to an imbalance between demand and supply, house prices have continued to soar. This has not been good news for aspiring buyers as it’s clearly a seller’s market. This is likely to continue until supply catches up with demand.

2. Mortgage rates are slowly rising

Despite high house prices, until now, low mortgage rates have made purchasing a house more affordable. It’s now evident that lenders have started raising rates in anticipation of the Bank of England’s Monetary Policy Committee (MPC) raising the base rate. This is likely to make it even harder for buyers to afford homes.

3. The Stamp Duty holiday is over

Like the low mortgage rates, the Stamp Duty holiday made homes more affordable despite record-high prices. Now that it’s ended, buyers have resumed paying standard rates of Stamp Duty alongside high house prices.

Thankfully, first-time buyers can still enjoy Stamp Duty relief for purchases up to £500,000.


What can you do to make buying a home more affordable?

1. Create a budget

The best time to buy a home is when your finances allow you to do so. Creating a budget that compares how much you can afford against all of the costs involved with a home move is a great starting point. You can then identify houses that definitely fall within your budget. 

2. Check whether you’re eligible for government incentives

Fortunately, the government offers incentives intended to turn generation rent into generation buy. Check whether you’re eligible for these schemes as you could end up reducing the upfront cost of your purchase significantly.

3. Compare mortgage deals

Rushing to grab the first deal that comes your way may not be the best approach. Take your time and compare different deals from different lenders. Use a mortgage calculator to determine how much you can afford to borrow and the deal that will help you save the most.

4. Find ways to save money on your mortgage

It helps to be creative, but caution should be taken to avoid breaching your mortgage agreement. Finding ways to save money on your mortgage is an example of being creative. 

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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