Stamp duty break sparks surge in house prices

UK house prices increased by 8.6 per cent in the year to February 2021, as buyers rushed to complete transactions before the stamp duty deadline, which has since been extended, according to the latest statistics released by the HM Revenue & Customs (HMRC) and the Office for National Statistics (ONS).

The UK Property Transactions Statistics showed that in February 2021, on a seasonally adjusted basis, the estimated number of transactions of residential properties with a value of £40,000 or greater was 147,050. This is 48.5 per cent higher than a year ago. Between January 2021 and February 2021, UK transactions increased by 23 per cent on a seasonally adjusted basis.

The data also showed that there were 180,690 UK housing sales in March, the highest monthly sum since the Revenue started publishing monthly transactional data in 2005.

Nick Whitten, head UK living research at JLL, a global real estate consulting company specialising in the provision of real estate services in the UK, said that the increased numbers were a result of people trying to sell in advance of the stamp duty deadline.

Mr Whitten said that the surge bolstered the case for the abolition of stamp duty. He said: “The rush to take advantage of the Stamp Duty holiday shows that it is a hugely inefficient tax which is ultimately a potential hindrance to the future of economic prosperity of the UK. It makes no sense for people to find themselves ‘locked-in’ to their current home because of the tax burden of moving. People need to be able to migrate towards opportunities as easily as possible in the 4th Industrial Age and as part of the levelling up agenda.”

Other industry voices were bullish, talking about the strength of the property market. Jeremy Leaf, former residential chairman of RICS, said: “Despite strong growth in house prices already, we are confident that there is enough demand to ensure there will not be a price correction, despite the tapering of the stamp duty holiday from the end of June. Our view is reinforced by the rollout of the vaccine and easing of lockdown restrictions which is boosting confidence in the economy and easing fears of a spike in unemployment when the furlough scheme is due to close on 30 September.”

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New 95 per cent mortgage scheme launched

As house prices in the UK soar to record levels, lenders are now starting to offer mortgages to borrowers offering a deposit of just five per cent under a new Government guarantee scheme from April.

The policy, announced in the March 3 Budget, is designed to help more first-time buyers secure a home. Analysts also suggest that cheaper deals are available for those able to stretch to a 10 per cent deposit.

The scheme is like policies previously used to boost the housing market and the economy, as well as offering support to those buying a home for the first time. The new scheme will be available to anyone buying a home costing up to £600,000, unless they are buy-to-let or second homes.

The Government is offering a partial guarantee, generally of 15 per cent, to compensate lenders if the borrower defaults on repayments. The guarantee is designed to give lenders the confidence to offer 95 per cent loan-to-value mortgages – many of which were withdrawn during the Covid crisis.

Lloyds, Santander, Barclays, HSBC and NatWest have started to offer products this month and Virgin Money will do so next month. However, some lenders such as Halifax, which is part of Lloyds Banking Group, and Barclays have said that these products will not be available for new-build properties.

Chancellor Rishi Sunak said: “By giving lenders the option of a Government guarantee on 95 per cent mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.”

However, lenders will still carry out affordability checks. Anyone who has lost a job, or whose income has been sporadic owing to the pandemic’s effect on employment may find it difficult to secure a mortgage. House prices have been rising – partly because of Government stimulus, and there are concerns too about the potential for some to fall into negative equity if this is followed by sharp falls in property values.

Some of the new mortgage rates are close to four per cent for a two-year fixed rate deal. For example, rates on NatWest’s new 95 per cent mortgages will start at 3.9 per cent.

Lloyd Cochran, head of mortgages at NatWest, said: “It reflects the extra risk the bank is taking on. I think over the long term that is a pretty competitive rate for customers.

“One of the things we do is ensure that the customer can afford that rate. We also ensure… the customer can afford that loan if interest rates were to rise.”

Michelle Andrews, HSBC UK’s Head of Buying A Home said: “We have supported home buyers and the wider housing market throughout the pandemic and are excited to support the Mortgage Guarantee Scheme.

“After such a turbulent year it is great that this scheme will make a real difference in enabling first time buyers who didn’t think they would have a chance of getting a mortgage and home movers to get the keys to their new home.”

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How can landlords benefit from Stamp Duty holiday?

Although the primary focus has been on first-time buyers, landlords and property investors can benefit from the Stamp Duty Holiday and the extension announced in the Spring Budget.

Before 8 July 2020, buy-to-let Stamp Duty rates were as follows:

Three per cent up to £125,000
Five per cent between £125,001 and £250,000
Eight per cent between £250,001 and £925,000
13 per cent between £925,001 and £1.5 million
15 per cent above £1.5 million

So, if you purchased a £500,000 buy-to-let property before the Stamp Duty changes took place, you would have paid £30,000 (three per cent of £125,000, five per cent of the next £125,000 and eight per cent of the remaining £250,000).

Until 1 July 2021, landlords and property investors are only required to pay a three per cent flat-out fee up to the raised threshold of £500,000. So, instead of paying £30,000 in Stamp Duty on a £500,000 property – you would only pay £15,000.

After that date and until 30 September 2021, this threshold will be lowered to £250,000. Landlords can still benefit from this ‘interim’ period. For example, if you purchase a buy-to-let at £250,000 between these dates you would pay a three per cent stamp duty fee of £7,500.

However, if you purchased this same property on 1 October 2021 (when stamp duty rates go back to normal) your stamp duty charges would be £10,000 (three per cent of the first £125,000 then five per cent of the remaining £125,000).

Buy-to-let property purchases above £500,000 will also be subject to additional Stamp Duty rates. Here is a quick break down of the brackets:

Three per cent up to £500,000

Eight per cent between £500,001 and £925,000

13 per cent between £925,001 and £1.5 million

15 per cent above £1.5 million

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More than 700,000 landlords could struggle with rent arrears by the end of 2021

According to research by LSE London and Trust for London, the number of private tenants in rent arrears in England could treble in the coming year.

This could mean that more than 700,000 tenants and their landlords may get further into financial difficulty.

Since the Government introduced its eviction ban in March last year, landlords have had limited options to remove tenants and recover rents.

The restrictions and new rules on repossession of residential properties were first introduced because of the original Coronavirus lockdown.

It was initially only intended to last three months but has now been extended several times to assist tenants who have been adversely affected by the pandemic.

In September 2020, some courts began to clear the backlog of repossession claims, starting with the most serious involving domestic violence or anti-social behaviour. A further ‘Christmas truce’ was then introduced.

Landlords were then due to start serving eviction notices from the 11 January 2021, but under pressure from tenants and charity groups, and with new COVID-19 restrictions in place, the Government extended the ban further.

Whilst there have been calls for a ban on repossessions and evictions from some groups, the National Residential Landlords Association has said the Government is making the situation worse by allowing tenant’s debts to accumulate.

This is because, despite the eviction ban, the rent on properties remains due and so millions of pounds of arrears have now built up on properties across the UK.

This has left many landlords in a difficult situation, where they not only face losing their investment properties but also their own homes, in some cases, due to being unable to cover the cost of their buy-to-let mortgages.

As with the previous bans, tenants and landlords are being asked to communicate with one another and discuss alternative arrangements. Where possible, tenants should continue to make rental payments to the best of their abilities.

If you have seen a considerable decline in your rental income due to the COVID-19 restrictions and the eviction ban then you should seek advice. We can help you to review your finances and look for opportunities to manage your costs during this difficult period. To find out more, please contact our experienced property tax specialists.

Thousands sign Stamp Duty petition

A new petition for the triggering of the Stamp Duty holiday upon exchange of contracts has been launched on the Government’s official petition website.

The campaign, launched in April, will run for six months. It has already gained over 4,000 signatures, having attracted more than 1,700 signatories within 24 hours.

Chris Holland, who created the petition, confirmed it had gone live on Westminster’s official website.

Mr Holland said: “People are finding themselves becoming trapped in a scenario whereby house prices are much higher, and at the same time they will now miss out on the stamp duty holiday. People are being financially punished from both sides, this from a policy that was designed to do the exact opposite.

“Exchanging contracts is exactly what it says. A contract, a legally binding agreement, to purchase a house often with an immediate 10 per cent deposit being paid. So why shouldn’t you benefit from the stamp duty holiday being triggered at that moment of exchanging contracts, rather than at the point of completion? This will allow in particularly new build buyers, with continuous building delays due to COVID-19, to benefit from this policy.

“If you can help in any way it will be greatly appreciated.”

Petitions posted on Westminster’s official site are guaranteed a Government response if they accrue more than 10,000 signatures.

If a petition gets more than 100,000 signatures on that site it will be considered for a debate in Parliament.

The last major SDLT petition, which called for the Government to extend the stamp duty holiday until September 2021, led to a debate in parliament – it attracted more than 150,000 signatures.