There have been renewed calls for the government to extend the stamp duty holiday in order to support the mortgage industry.
Last year, chancellor Rishi Sunak offered a temporary freeze on this duty, which would last until March 2021 in a bid to revive the housing market, which had remained closed for much of the initial lockdown.
While this has stimulated demand, there are concerns this it could herald a collapse in house prices in the Spring if it is suddenly removed.
Estate agents, lenders and surveyors are all calling for a phased approach where this incentive may be gradually removed over a six-month or year-long period.
They point out the effect of house prices falling could be exacerbated by rising unemployment and ongoing economic uncertainty caused by the coronavirus pandemic – potentially leading to a severe downturn in the property market.
Quilter mortgage expert Karen Noye points out that many potential homebuyers and movers are already struggling to meet this deadline, given the time it takes for transactions to go through, particularly in lockdown.
She says: “Last year, the ‘stay at home’ orders were accompanied by a reduction in the rates of stamp duty paid on residential properties until 31 March 2021, and this unlocked the housing market and provided a much needed boost to property sales during an extremely difficult time.”
She points out that recent figures from the Bank of England show that mortgage approvals rose to their highest level in 13 years, with net borrowing hitting £5.7 billion in November 2020.
“It is clear that the housing market has been burning bright thanks to the fuel of the stamp duty cut, but the blaze will likely be extinguished without any further government support.
“Given the amount of time it takes to offer, exchange and complete, in reality the 31 March 2021 deadline for the stamp duty cut has already expired, so the housing market once again finds its self in a precarious position once the incentive to move and benefit from the stamp duty cut ends.”
She adds: “The freeze in the housing market will be compounded by the dire economic environment expected over the next few months with the OBR – the government’s fiscal watchdog – warning that Covid-induced unemployment will peak at 7.5 per cent in the second quarter of 2021, which will inevitably hit mortgage applications.
“The stamp duty cut is an imperfect solution. There are valid concerns that it has inflated property prices and has done little to help first time buyers. But it should be seen as a sticking plaster to patch up the housing market through the difficult first half of the year before the economic recovery can begin.”
Estate agent David Alexander, joint chief executive officer of apropos by DJ Alexander said there are growing signs that the market will soon run out of steam, especially if the stamp duty holiday is not extended.
Alexander is one of many estate agents, surveyors and solicitors who are lobbying the government to extend the stamp duty holiday. They want the government to phase the stamp duty cut, to ensure the housing market does not hit “a brick wall” at the end of March.
Melanie Spencer, head of the MCI Club, adds: “The fact that we are in another lockdown is becoming a bit like déjà vu. However where this one differs from the first lockdown is that the housing market continues to stay open as estate and lettings agents continue to operate, you can still move house and, crucially for many lenders, surveyors can still conduct valuations.”
She said appetite from buyers remained high, but as others have pointed out this could change once it becomes clear that transactions will not be completed in time to benefit from the stamp duty holiday.
