The Stamp Duty holiday has clearly been a driving force behind the strong demand in Britain’s housing market this year.

A pre-Covid backlog and ‘Brexit lag’ of buyers who had held off their plans to move have certainly played a role in spurring activity, but there has been a wave of hopeful homebuyers seeking to take advantage of the savings, too. From home movers to buy-to-let dabblers, the Stamp Duty exemption has acted as a fuel for demand in the housing market.

However, attention is now turning to if or when this mortgage boom will fade and all eyes are firmly fixed on the Stamp Duty holiday deadline, prompting some fears of a cliff-edge for the housing sector.

Extending what has been a successful policy for the market could only bring positives – for lenders, advisers, borrowers, and the government.

Fuelling the recovery

Britain’s housing market has long been considered an economic driving force, a view shared by Downing Street.

The figures behind the current Stamp Duty scheme already speak for themselves. Between July and September, UK property transactions rose by more than a quarter (27 per cent). Last month even saw the highest number of mortgage approvals recorded in the UK since September 2007.

We believe that the cut is delivering tax revenue. Research suggests that every home mover spends around £4,000 on average if transaction costs such as legal fees and surveys are included. Using increased lending volumes via L&G Mortgage Club, we estimate that the cut could be boosting tax revenue related to housing transactions by more than £1bn over one year.

Sunak’s Stamp Duty holiday is an already proven measure that has propelled activity in the housing market. An extension of the scheme would ensure demand remains high beyond March 2021.

Win-win

The Stamp Duty holiday’s benefits go beyond the immediate savings to borrowers. The tax has long been a barrier to older homeowners who want to downsize in later life, acting as yet another cost that disincentivises them from moving to smaller, more manageable properties. The current exemption has only made it easier for these ‘last time buyers’ to move.

Previous research by Legal & General has indicated that as much as 26 per cent of all UK housing stock is owned by last time buyers.

But removing this barrier hasn’t just helped the older generations to downsize. It has encouraged further transactions down the ladder too in making available larger properties for growing families, freeing housing stock for Britain’s first-time buyers.

Allowing this activity to continue will not just keep advisers, lenders, conveyancers and surveyors in the mortgage market busy, but it could ultimately raise revenue for the government by boosting the number of housing transactions.

If the Stamp Duty holiday stays in place for longer, that potential for last time buyers to mobilise the entire housing ladder remains – a win-win for all.

Managing demand

The housing market has seen unprecedented demand post-lockdown and it’s no secret that these high levels of activity have impacted lenders’ service levels.

The existing Stamp Duty holiday timeline is likely a factor behind this. Buyers have been eager to get their housing plans on the move to avoid missing out on savings. New research from Legal & General Mortgage Club has shown that movers need to have started their homebuying journey by 1 November to be in with a chance of completing by the Stamp Duty deadline.

An extension of the tax incentive could help spread demand over a longer time period. Buyers would no longer need to rush their property purchase, helping lenders to manage enquiries and avoiding some of the difficulties and delays that are a source of frustration.

Easing the pressure on lenders could bring about positive change for buyers too, giving providers more of an opportunity to get on the front foot in underserved areas of the housing market. The government has already set out plans to launch low-deposit, long-term fixed-rate mortgages as a new route for FTBs.

However, extending the Stamp Duty incentive would help to spread demand and potentially put lenders in a better position to relaunch high-LTV products that are critical to those with small deposits without being overwhelmed.

Positive thinking

We have shared our thinking with the Treasury. The housing market has already benefitted greatly from the government’s Stamp Duty holiday. This measure, alongside other factors, has propelled activity forwards.

Keeping the incentive in place isn’t just about avoiding negatives – it could bring a whole host of positive effects that will continue to position the housing market as a driving force behind the economic recovery.

Kevin Roberts, Director, Legal & General Mortgage Club