House prices in the UK have been rising at a rate not seen since the boom of 2004. In the month of April alone, prices went up by 2.1%, the highest monthly increase in 17 years!
One of the factors driving the surge in house prices is the extension of the stamp duty holiday until the end of June. As the stamp duty deadline approaches, many people are now wondering what effect it will have on house prices. Will prices continue to rise or are they due to drop? We investigate.
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What is the stamp duty holiday?
Stamp duty is a form of tax that you pay when you purchase a property or land above a certain value in England and Northern Ireland.
Last year, the government introduced a stamp duty holiday by raising the threshold at which buyers start paying stamp duty from £125,000 to £500,000. This move aimed to help out buyers whose finances had been affected by the Covid-19 pandemic. It was also designed to boost the housing market that had been hit by lockdown.
The stamp duty holiday can save buyers as much as £15,000 when purchasing a home.
What effect has the stamp duty holiday had on house prices?
The stamp duty holiday has resulted in many people bringing forward their planned house moves in order to save on tax. Demand for housing has increased as more people rush to complete before the deadline.
When combined with other factors, such as a relative lack of housing inventory, the ultimate result has been a surge in house prices to new highs.
Will house prices drop when the stamp duty holiday ends?
Experts previously predicted that house prices would fall in 2021, particularly when the stamp duty holiday comes to an end.
However, things have changed. The primary belief now is that prices will continue to rise even after the stamp duty holiday.
Some of the other conditions that are currently driving up house prices are expected to remain in place for the next few months. These include:
- A shortage of properties for sale
- Government support for 95% mortgages
- A big increases in average household savings
- Buyers looking for a fresh start in life after lockdowns come to an end
Many experts agree that the expiration of the stamp duty holiday will have little or no impact on house prices. The other factors mentioned will prop up house prices and most likely continue driving them upwards for the foreseeable future.
Having said that, some experts, including Sarah Coles, personal finance analyst at Hargreaves Lansdown, think that the pandemic could still throw a spanner in the works and change the trajectory of house prices in the short term.
For example, the discovery of new Covid-19 strains could stymie the economy’s recovery and sap market optimism and confidence. This could result in a drop in demand and a subsequent drop in house prices.
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Should you buy a house before the stamp duty holiday ends?
This is a personal decision.
If you are already committed to buying a new home and nearing the end of the process, completing before the June deadline could save you some money on stamp duty.
However, if you’re currently searching for a house, or just beginning the buying process, it’s highly unlikely you’ll make it on time to avoid paying stamp duty. The pandemic has hampered the process by delaying conveyancing and mortgage approvals. The average time it takes to complete has gone up by almost 6%.
In any case, any potential savings you might make on stamp duty may be offset by the higher price you will almost certainly have to pay for a house as intense competition for the few available units drives prices up.
If you are currently contemplating buying a home, the most important thing to focus on is finding the right property for your needs and your financial situation. In the end, you want to feel like you bought a home you wanted at a price you could afford, regardless of the timing of the purchase.
