Chancellor Rishi Sunak’s announcement of a Stamp Duty Land Tax (SDLT) holiday has been well-received by the wider property sector. In the lead up to the chancellor’s mini budget, some leaks suggested that the holiday would last for six months and only apply to a certain category of buyer. There were also concerns the holiday would not be implemented until the 2020 autumn budget. Thankfully, this proved not to be the case.
With properties up to the value of £500,000 exempt from paying the tax in England and Northern Ireland until 31 March 2021, the holiday should provide the impetus needed for buyers and sellers to return to the market. The success of the holiday will be revealed over the coming months once the official data concerning house price growth and real estate transactions are released.
How effective will the SDLT holiday be?
Tax reliefs are a mechanism used by governments to redistribute wealth, support national productivity and stimulate spending and investment in targeted areas of the economy. By reducing or removing taxes on certain types of transactions, investors, businesses and/or consumers are thereby encouraged to spend and invest more.
With the UK moving out of the COVID-19 lockdown, the government’s main objective is to ensure that all is being done to get the economy back up and running. The property sector plays a fundamental role driving economic productivity and growth, which is why the government is encouraging investment into bricks and mortar.
This is not the first time a stamp duty holiday has been implemented. To combat the economic fallout from the global financial crisis, a similar holiday was introduced in September 2008. In this instance, the lower threshold for SDLT liability was raised from £125,000 to £175,000—a move designed to support the bottom end of the housing market amid the economic hardship caused by the recession.
Initially meant to last for 12 months, the government expanded the holiday to cover all property transactions that took place until the end of 2009. As a result, there was an 8% increase in transaction volumes for houses affected by the intervention.
While only nine months in length, the current holiday means that nine in 10 homebuyers will not be liable to pay SDLT. On that basis, one could anticipate an increase in transactions over the coming months. However, we should not overlook the complexity of the property market either. The holiday will not have a blanket impact, which is why each sub-sector needs to be looked at and analysed on its own individual merits. Of these, one of particular interest is the prime central London (PCL) property market.
SDLT and the PCL market
Those buying prime real estate in London will benefit from the holiday; some estimates suggest savings of around £15,000 for those buying higher-end property in the capital. Will this spark buyer demand for prime property? I believe there is a good chance it will, primarily as a result of more international buyers looking to take advantage of new investment opportunities.
Non-UK residents are an integral part of the prime property market. In H2 2019, 55% of all PCL property purchases were made by foreign buyers. And at in the immediate aftermath of the December 2019 general election, we witnessed some record-breaking sales. Things were looking positive until the COVID-19 pandemic brought the wider property market to a standstill. Some sectors were affected worse than others but, importantly, international appetite for prime property has not disappeared.
For example, estate agency Beauchamp Estates has sold over $374 million worth of luxury London property to Hong Kong buyers between December 2019 and June 2020. Here at Butterfield Mortgages Limited (BML), our ability to arrange prime property mortgages during the COVID-19 lockdown also meant we could meet the needs of international buyers looking to complete on a sale.
I anticipate the SDLT holiday will increase the number of sales involving international buyers in the PCL market. On top of this relief, come April 2021, international buyers will be faced with an additional 2% SDLT surcharge. By taking advantage of the fluctuating value of the pound and the existing holiday, acting now ensures they are minimising the costs involved in a purchase.
As with all forecasts, it is important to acknowledge all of the potential scenarios we could face. While the UK is on the path to recovery, a second surge in COVID-19 cases and reintroduction of lockdown measures could result in a drop of transactions once again. Nonetheless, there are good reasons to be optimistic. The SDLT holiday comes at an important time and gives buyers an opportunity to either consolidate or expand their existing property portfolio, particularly when it comes to the PCL market.
Alpa Bhakta is CEO of Butterfield Mortgages Limited, part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited. Butterfield Mortgages is a London-based prime property mortgage provider with a particular focus on UK and international HNWIs.
The opinions expressed in this article are those of the author and do not necessarily reflect those of Butterfield Mortgages Limited or the wider Butterfield Group.
Butterfield Mortgages Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register Number: 119274). Registered office: Sun Court, 66-67 Cornhill, London, EC3V 3NB. Registered in England No. 338594.