Some 4.3m homes have been pushed into a higher stamp duty bracket since March 2020 as house prices continue to rise, according to the latest data from Zoopla’s house price index.
Of those pushed into the higher bracket, 28% have moved above the initial £125,000 stamp duty threshold in England and Northern Ireland.
In Wales and Scotland, rising house prices also mean that a further 360,000 homes have been pushed across the initial threshold of £145,000 in Scotland and £180,000 in Wales, at which stamp duty becomes payable.
Since March 2020, the average UK house price has risen by £29,000, which is almost equal to the current national average annual salary of £31,096.
Despite a tumultuous economic backdrop due to the pandemic, according to Zoopla, there have been consistently high levels of buyer demand over the last two years, set against constricted supply, which has contributed to the overall increase in UK house prices.
The demand has been reflected by HMRC who revealed that stamp duty receipts in England and Northern Ireland reached £18.6bn in the year to March 2022, an increase of £6.1bn from the previous year.
Meanwhile, first time buyers are also feeling the effects of rising house prices, as they are now spending an average of £225,000 to buy their first home, an increase of £27,000 since March 2020.
Zoopla explains that this group of prospective buyers now require an additional £4,000 for a deposit, despite average annual earnings increasing by only £2,704 over the last two years.
It suggests that they also need an additional £5,000 in annual household earnings or income to secure a mortgage, equating to £417 per month.
Zoopla head of research Gráinne Gilmore comments: “While homeowners who make a move will see the benefit from increased property values when they sell, new entrants to the market will have to find additional finance to fund a move – meaning the reliance on the ‘Bank of Mum and Dad’ is likely to increase among first-time buyers.”
“It also highlights the importance of first-time buyers having access to mortgage deals with smaller deposit requirements if they can meet the criteria for all other aspects of a mortgage loan,” Gilmore adds.
Elsewhere, the index showed that the demand for homes remains at 58% above the five-year average. However, there are increasing signs that the supply of homes for sale is starting to rise with the flow of new supply up 3% on the five-year average.
Some areas that are beginning to emerge as ‘supply hotspots’ include Erewash in the East Midlands which has seen a 45% increase in properties available for sale over the last month, followed by Pendle in the North West and Elmbridge in the South East, which both saw a rise of 38%.
City centres also continue to experience demand as workers return to offices and both pent-up domestic and international demand for city living increases. In London, Kensington and Chelsea have seen the biggest increase in homes listed for sale over the last month, with average house values up just 2.1% on the year. This compares to a 3.4% increase in Greater London, 8.2% in Birmingham and 9.5% in Manchester.
Hargreaves Lansdown senior personal finance analyst Sarah Coles says: “The stamp duty holiday had a nasty sting in the tail. Hundreds of thousands of people have actually paid more tax, thanks to the huge hike in house prices fuelled by the tax break.”
“Since the start of the pandemic, the average house price is up £29,000, pushing millions of homes into a higher tax bracket. And while an estimated one million people paid less tax during the stamp duty holiday, as soon as the window closed, hundreds of thousands of other buyers started paying the price.”
“These higher tax bills are piling yet more pressure on buyers, who are already facing the stress of rampant house price rises, hikes in mortgage rates and runaway bills, which make it increasingly difficult to cover the cost of the mortgage.”
“So far, all these pressures have done little to dent our enthusiasm for property. The demand for homes remains 58% above the five-year average. Right now, with property price rises running so hot, buyers may feel they can’t afford to take their foot off the accelerator, for fear of being left behind by the market.”
“However, there’ll come a time when the pressure on buyers takes a toll. It could mean enthusiasm for property starts to cool, as the cost of living reaches a tipping point. Alternatively, the turning point may be precipitated by mortgage lenders, who raise rates and factor in higher costs to mortgage affordability calculations – cutting more buyers off from potential loans. Neither is likely to mean price drops, but either could significantly slow the pace of growth as we go through 2022.”
