Life
    Money

    Should you take advantage of the stamp duty holiday?

    8 July 2020

    Finally, some movement from the Chancellor on Stamp Duty. For decades, successive governments have seen Stamp Duty and an ever rising housing market as an easy way to raise more revenue to bolster their coffers.

    The impact, of course, added fuel to the inflationary fire whilst stifling a market that, particularly for a primary residences, should be as tax free as possible.

    Will this temporary drop in stamp duty for purchasers be the reform we need? No. However should we dismiss this measure as an expensive headline grabbing gimmick? The answer is also no. This is a meaningful policy move that could provide a temporary boost to a febrile market.

    Until now, in England and Northern Ireland, Stamp Duty was paid on land on property transactions of more than £125,000. For first time buyers the figure before this announcement was in fact £300,000 before any Stamp Duty was due with the levy at 5 per cent on any portion between £3-500,000. Now, on all purchases up to £500,000 there will be no Stamp Duty unless it’s a second home in which case the 3 per cent still kicks in. The maximum amount that you could save would be £14,999. Not an insignificant sum and certainly not to be sniffed at.

    Afterall, many forget that when you are buying a new home, you will always need to do some work, change some furniture around and deal with a few urgent problems. A bit of extra cash will help.

    The backdrop to any decision on whether to buy, move or rent is important. Whatever your situation a decision shouldn’t just be based on Stamp Duty. Here’s my checklist for you to work out whether now is the time for you to buy.

    1. Can you afford it?

    The most basic of questions but is your job safe? Are you due a raise? Have you got enough free cash? What’s the cost of your current living arrangements and will a home purchase make you better or worse off on a monthly basis? Take time to do the numbers.

    2. Will the market rise?

    This is my prediction. But if you are purely basing your decision purely on market prospects. Stop. Now is the time to make a decision based on lifestyle and more importantly affordability.

    3. Location

    There are two important factors here. Much has been spoken about those seeking to exit towns and cities for a more rural lifestyle. This is a thing and you could perhaps find some interesting opportunities in areas that some further up the housing ladder are wanting to shun. The £500,000 value cap will also go further outside the capital. You may also find, ironically, that areas often sought for second homes are also attractive because the stamp duty cut won’t really be helping those areas as much.

    4. Mortgage rates

    Whilst I would never advocate borrowing more than you can afford, interest rates have never been this low in the UK. And long term prospects do not envisage a rise for some years to come. This allows you to take a longer term mortgage position, lock in your loan and get settled. With low interest rates but increased pressure on the rental market the shift should make property purchase a better bet for your money.

    5. Type of property

    There’s always a variance of views between those who swear by a new build and those who always go period. It all comes down to the space you want at a price you can afford. The advantages for a new build are normally state of the art technology and guarantees.

    The advantages for period properties tends to be aesthetic: whether it’s a fireplace with an inglenook, wooden framed windows, a dado rail or a cubby hole under the stairs, everyone likes a feature that makes their home unique. Similarly, with the new energy grants on the way to insulate homes, you could find yourself a recipient of further government incentives.

    Decision time

    Once you have navigated your way through the decision minefield, then you have to assess whether this will be the boost to the market everyone was looking for. Market commentators seem to be in agreement. Interest in property will pick up.

    We can see that immediately in traffic on property websites. Sentiment will improve and it’s likely that any potential price slide will have been averted. Distressed sellers are not in the market. Meaning prices won’t be dropping any time soon. There’s a dearth of supply of new builds given the impact of lockdown. Perhaps there will be a short term price rise and there’s a chance that some of the saving you make on purchase will go in extra purchase price to the vendor.

    Recent research by the agent Jackson Stops indicated that one fifth of respondents expected to move within 12 months. And then there’s the spectre of the additional 2 per cent Stamp Duty for overseas purchasers next April. All pushing towards a “do it now” real estate attitude.

    There are a lot of itchy feet out there and given the economic tsunami that’s on the way, might I suggest that psychologically it will be easier to weather the storm if you’re living in a home in which you are happy to batten down the hatches until the pandemic and its aftermath have passed us by.

    James Max is a broadcaster and chartered surveyor. @thejamesmax