As the latest national lockdown continues to suppress large parts of the UK economy the housing sector remains relatively buoyant. In fact, the residential property market is not just buoyant, it is booming. In December 2020, the average UK house price increased by 8.5% to a record £252,000, constituting the highest annual growth rate for more than six years. The hike, up from 7.1% in November, represents the largest yearly rise since October 2014. These figures would be remarkable in any context, but set against a deadly global pandemic and an historic 9.9% slump in the wider UK economy in 2020 they are extraordinary.
So, what has been driving these record-breaking figures? First, simple supply and demand: the UK and the south-east in particular has suffered from a housing shortage for a long time, despite the efforts of successive Governments to build more (and more affordable) homes. On the other side of the equation, demand has been driven up by people looking for larger properties in less urban areas as they seek more comfortable home-working conditions in areas that are further from the usual commercial centres (across the country, prices for detached houses have increased by 10%; at a regional level, London recorded the lowest annual increase in prices). Demand has also been increased by people having more savings as they are unable or unwilling to spend on other high-value items, such as holidays and cars.
Secondly, however, the Government has turbo-charged the residential property market by temporarily introducing a nil rate SDLT band up to £500,000 – the effect of which has been to slash SDLT by up to £15,000 on some property purchases.
This policy has unsurprisingly had an inflationary effect on the residential property market and stands in contrast to the Government’s approach to commercial real estate, which has been to preserve and maintain existing arrangements through a moratorium on lease forfeitures and relief from business rates. These policies have sustained, rather than stimulated, the commercial property market which continues to suffer from decreased footfall, lower industrial output, and reduced demand for office space.
The SDLT holiday is due to come to an end on 31 March 2021 – a cliff edge which is rapidly approaching. The effects of the nil rate SDLT band have been so significant that there have been calls for it to be extended. On 18 February 2021, the Law Society, which represents England’s conveyancing solicitors, called for urgent action to prevent the end of the SDLT holiday, arguing that the sudden and absolute nature of the end-date will result in thousands of aborted property transactions. The Law Society’s press release cited analysis by the property website, Rightmove, which suggests that around 100,000 buyers could miss out on the stamp duty saving.
The Law Society has suggested three possible alternative options to ending the SDLT holiday on 31 March:
- extending the SDLT holiday, to allow more time for buyers to complete transactions before the holiday comes to an end;
- implementing a tapered transition from the full SDLT holiday to the end of the scheme, through the creation of an interim period in which buyers can benefit from a reduced SDLT concession, to help smooth the cliff edge and reduce the risk of a significant impact on consumers and the market; or
- introducing a grandfathering scheme for transactions which have not completed by the cut-off date, so that buyers in transactions that have already progressed significantly by 31 March but which have not yet completed can continue to benefit from the SDLT holiday.
Complicated tapering or grandfathering measures would be difficult to administer and therefore expensive. In relation to a possible extension, on 12 February 2021, prior to the Law Society’s intervention, the Financial Secretary to the Treasury, Jesse Norman, stated that the Government had no plans to extend the SDLT holiday. However, more recent press coverage has suggested that the Treasury may now be considering just such a measure, with one report indicating that the SDLT holiday could be extended until June 2021, possibly to coincide with the wider lifting of Covid-19 restrictions.
Whilst extending the SDLT holiday may take some of the heat out of the market over the next few weeks as buyers will be in less of a frantic rush to complete, this move would run the risk of accusations of kicking the can down the road by simply swapping one cliff edge on 31 March for another in June.
In addition, SDLT is a significant source of income for the Government and it is estimated that the current nil rate band will have cost the Treasury £3.8 billion by the time it comes to an end on 31 March. Against a backdrop of increased Government borrowing and expenditure through furlough schemes and other measures to stimulate the economy, as well as an NHS in dire need of funding and reeling from the effects of the pandemic, there must be questions as to whether the Government can afford to continue with this tax break.
Even during the best of times SDLT is a controversial and unpopular tax – any decision in Wednesday’s budget to end the SDLT holiday as planned, sending property purchases over the cliff edge, is likely to prove very unpopular indeed.
If you or someone you know is thinking of buying or selling their home call us today on 0800 999 4437 to speak with one of our property experts today in an initial complimentary telephone/video call consultation.