On July 8th 2020, Chancellor Rishi Sunak announced that the stamp duty threshold will be raised from £125,000 to £500,000 until March 31st 2021.
What is stamp duty?
When you buy a house or a piece of land in the UK, you are required to pay stamp duty, which is a percentage of the property price. The stamp duty rates were as follows
- 0% for £125,000 or less
- 2% for £125,001 to £500,000
- 5% for £500,001 to £925,000
- 10% for £925,000 to £1.5m
- 12% for anything above £1.5m
But from July 8th 2020 to March 31st 2020, no stamp duty will be levied on a property if it is £500,000 or less. The period has become known as Stamp Duty Holiday.
The primary goal of stamp duty holiday is to uplift the housing market which had heavily suffered because of the lockdown.
Without stamp duty, an average homebuyer in the UK can save more than £2000 when buying a property. As a result, more people want to buy. And since stamp duty holiday will not be there forever, buyers are moved to act with a sense of urgency leading to a lot of activity in the market.
Apart from helping buyers save money, stamp duty holiday aims to boost the economy as a whole. How so? Since buyers are now exempt from stamp duty, they can invest more money on utilities, interiors, furniture, house decorations, and gardening. All of this will be of great help to retailers, thereby helping the economy.
The stamp duty holiday will also be of great advantage to sellers, estate agents and developers. Now that buyers will not have to pay stamp duty, sellers can charge a higher price for the property without worrying about stamp duty slabs.
The case is slightly different for first-time buyers. Even prior to stamp duty holiday, a first-time buyer wasn’t required to pay stamp duty for properties under £300,000. And for properties under £500,000, stamp duty was not levied for the first £300,000. So first-time buyers are not benefited greatly by stamp duty holiday. One benefit, of course, is that sellers who want to buy new property during stamp duty holiday are more inclined to sell and therefore you can get their property easily at a lower price.
Note: Stamp duty holiday does not apply to those who are buying additional properties. For them, stamp duty rates remain the same i.e. starting from 3% and going up to 15% depending on the price of the property.
How has stamp duty holiday affected the market?
Since the beginning of stamp duty holiday, the property market has experienced an amazing revival. There is a lot of activity and a lot of competition. People feel this is the best time to secure their dream homes. As a result, house prices have increased. Still people want to buy. They don’t want to wait because recession might worsen and stamp duty holiday will soon end.
Banks, however, have increased the cost of borrowing since they fear a great recession on the horizon. Because of this, first-time buyers and those with small deposits are not able to get mortgages.
It is also predicted that since furlough scheme and stamp duty holiday is about to end and No Deal Brexit is quite likely to happen, demand may soon drop and the housing market may suffer another storm. Only time will tell where all of this is leading to.
If you need any further advice on stamp duty or any other property related matters, please do not hesitate to contact our experts at Aristone Solicitors.
