The stamp duty holiday has benefited thousands of home buyers whose personal finances might have taken a hit because of the Covid-19 pandemic.
Now that the tax break has been extended for three more months, you might be wondering what this could mean for the immediate future of house prices in the UK. Let’s take a look.
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How does the stamp duty holiday affect house prices?
During the holiday, buyers in England and Northern Ireland don’t pay stamp duty on the first £500,000 of all house purchases. Since it’s introduction, the holiday has helped rejuvenate the housing market which had stalled due to the Covid-19 pandemic.
House prices soared 8.5% in 2020, according to figures from the Office for National Statistics. That’s their highest annual rise since 2014. The stamp duty holiday played a big role in this by bringing forward home moves and increasing demand.
Prices dipped a little in January 2021 as the end of the stamp duty holiday approached. They then rebounded in February as rumours that the deadline would be extended began to circulate.
The chancellor officially confirmed the extension until 30 June 2021 when he announced the Budget. From 1 July 2021, there will be a transitional period where the threshold for stamp duty will be £250,000. In October, the threshold will go back to the usual £125,000.
So what can we expect to happen to UK house prices between now and then?
Well, as more people rush to take advantage of the stamp duty holiday before its new deadline, we could see a modest rise in house prices at least in the short term.
In other words, the stamp duty holiday extension will further stimulate the market. This could help boost confidence in the market and lead to a rise in house prices.
What will happen to house prices once the stamp duty holiday ends?
The end of the stamp duty holiday could trigger a fall in demand in the property market. This might lead to a levelling or even a drop in house prices.
However, the issue appears to be more complicated than that. In fact, there is no clear consensus among industry experts about what will happen to house prices across 2021.
For example, some argue that prices are likely to level out or drop because of the end of the stamp duty holiday and a combination of other factors such as high unemployment levels and increased desire to move out of cities.
Other industry experts have a different viewpoint. They think that positive factors such as the successful rollout of the Covid-19 vaccine and government incentives, such as the mortgage guarantee scheme and the new Help to Buy scheme, could help sustain the property market and prevent any significant drop in prices.
In a nutshell, the outlook on house prices remains uncertain. A lot will depend on how the pandemic and the measures to deal with its impact on the economy evolve.
In the meantime, the stamp duty holiday will continue to provide a short-term boost to house prices as more people rush to take advantage of the tax break.
As for what happens after that, we’ll have to wait and see.
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