The property market in England and Northern Ireland has now had a month to get used to Chancellor Rishi Sunak’s temporary cut in stamp duty land tax (SDLT). As a result of this cut, no SDLT is payable on sales of residential properties valued at up to £500,000 for the period from 8 July 2020 to 31 March 2021. People buying second homes and landlords will also benefit from the reduction, although they will still have to pay the 3 per cent surcharge which applies to additional properties.
Different rules apply in Scotland and Wales, which set their own land taxes.
As expected, the prospect of reduced SDLT bills on property acquisitions has acted as a spur to the residential property market in England and Wales. Estate agents are reporting a flood of properties coming onto the market, with vendors’ expectations reflected in higher asking prices. Whether that translates into an SDLT-driven boost in completions at higher values remains to be seen.
Other factors are also becoming apparent.
First-time buyers, who previously had a £300,000 SDLT threshold, will only benefit in more expensive areas. While the average price paid for first-time home in England is around £210,000, in London the equivalent figure is approximately £425,000. At that price the increased SDLT threshold produces a saving of £6,250.
For homeowners thinking of moving to more expensive properties, the temporary SDLT reduction could offer big rewards. With the new rules offering a £15,000 tax saving on buying a £500,000 property, estate agents are reporting record demand in commuter towns around big cities, particularly London.
For many first-time buyers and second steppers, the picture is complicated by difficulties in securing a mortgage. Even if they are now working full-time, applicants who have been furloughed or are engaged in what is perceived to be a high-risk sector such as casual dining, are reporting extra steps in the application process and delays in decision-making by lenders. For many purchasers, securing the SDLT saving while it lasts has been of paramount importance. There’s now a grim awakening as problems in obtaining mortgages move to the top of the list.
Second-home owners and buy-to-let landlords will also benefit from the raised threshold although they will still be required to pay the 3 per cent SDLT surcharge. With working from home – wherever that may be – set to continue for many people for the foreseeable future, the decision to buy a second home will be driven by personal considerations. If the decision goes in favour of buying a second home, then the SDLT saving will be a welcome sweetener.
For buy-to-let landlords, the position is more complex. Aside from the question of whether a mortgage can be obtained if one is needed, it seems unlikely that the reduction in acquisition costs represented by the SDLT cut will compensate for the other adverse tax changes which have come into force over recent years. However, those who can buy mortgage-free may decide to adopt a watching brief until the New Year. If a mortgage famine means that current hopes for a residential property boom are not met, then asking prices may decline as 31 March 2021 looms. We may then see more second-home owners and buy-to-let landlords enter the market.