The government is preparing to announce a three month extension to the stamp duty holiday, originally meant to end on 31 March, as Rishi Sunak attempts to keep the property market growing.
Sunak will use his Budget next week to announce the change of the deadline to the end of June, says a report in The Times. If the rumours are true, an additional 300,000 property transactions could get through in England, based on previous HMRC data, says property website Rightmove. That would save buyers around £1.75bn in total. Around 80% of the 628,000 sales agreed but still currently in the legal process would pay no stamp duty.
The chancellor was under pressure by the industry to extend the stamp duty holiday, with the Building Societies Association (BSA) calling on him to taper the end of the reduction in the tax to allow those who were already in the process of buying to benefit from it. The third lockdown and an “unprecedented increase” in the number of transactions had led to increased delays in the buying process, says the BSA: “These transactions are at risk of falling through and chains collapsing, leading to disruption in the housing market and causing economic uncertainty at the time when we hope the wider economy will begin to pick up.”
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The Office for Budget Responsibility predicted the housing market could face a cliff edge if the holiday came to an end on 31 March, adding house prices could drop by over 8% this year.
The extension could cost the Treasury about £1bn, says Capital Economics. And while It would prevent sales from tumbling after April, it doesn’t necessarily encourage new activity as “conveyancing delays” wouldn’t allow new transactions to take place. There’s currently a four-month gap between an offer being accepted and exchanging.
The extension could be a good thing for those who bought a house in December and were concerned they wouldn’t be able to exchange before the end of March. But, as we’ve said before, the stamp duty holiday is not necessarily saving buyers any money. And as Paul Johnson, head of the Institute of Fiscal Studies, pointed out to The Times, by extending the stamp duty holiday the government is increasing the likelihood of people expecting it to become permanent. “Whenever it’s withdrawn you risk a period of stagnation and overblown house prices as you get towards the end.”
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