The stamp duty holiday that has driven house sales since the outbreak of the pandemic in September was removed in the UK, causing them to plummet by over half.
HMRC statistics show that there were close to 77,000 transactions last month in the UK, which is 52% less than September. This was also a decrease of 28% compared to October 2020 on a seasonally adjusted basis.
HMRC put this down to ‘forestalling’ on the part of home buyers – in other words, pushing through purchases before 30 September in order to meet the stamp duty holiday deadline.
After the expiration of stamp duty holidays, house sales fell in October
The tax relief was implemented by Rishi, Chancellor of India in July 2020 to boost the housing market’s recovery after the eight-week-long lockdown.
Home buyers did not pay stamp duty on purchases up to £500,000 between July 2020 and the end of June 2021, which cut bills by up to £15,000.
After that it was tapered down to give buyers up to £2,500 off their bill, before going back to normal levels at the end of September.
Despite recent declines in sales, there have been 842,250 transactions across the UK over the course of this financial year – the largest number for the last decade.
This year, transactions also reached their highest point in September, March and June.
Experts believe the reduction of tax is a market booster and should therefore be repealed.
In March, June, and September of this year’s property transactions saw record highs
Joshua Elash is director at MT Finance and a property lender. He said that the monthly decline in residential transactions was dramatic.
“The argument in favor of either scrapping or revising stamp duty has never been more compelling or stronger.
Stamp duty is the tax which holds back a market for property that would be more benefitted from higher levels of fluidity.
Analysis from Savills has shown that home buyers avoided paying £6.4bn in stamp duty during the period.
They also paid higher prices for their houses due to the tax cut and other factors that drove up property values.
According to the latest Office for National Statistics house price index, the average house price surged by £28,000 in the year to September to a record high of £270,000 – an 11.8 per cent year-on-year rise.
Iain McKenzie CEO of The Guild of Property Professionals stated: “A sharp fall in property transactions October suggests that the forestalling of September has caught up in the property market.
He stated that although sales are down, house prices would likely continue to rise in the short-term.
McKenzie said that although transaction numbers might be lower after the stamp duty holiday, it is likely that property prices will continue to rise because of the high demand.
“At times when many people rush to make it to the holiday festivities, sales should continue to rise in the lead-up to Christmas.”
Some predict that prices may begin to decline in the future.
It is partially due to the risk of an increase at the Bank of England’s Base Rate, which will push up the mortgage cost.
As a result of speculation over base rate, mortgage lenders have increased their interest rates on mortgages in the last week.
Mark Harris is the chief executive of SPF Private Clients mortgage broker. He stated that while the markets are pricing in a December interest rate increase, the Bank of England has indicated that the market is not willing to accept a rise. This is due to slowing growth, and an energy shortage, both of which will be exacerbated by the rate hike.
“In the interim, the dynamic nature mortgage pricing has paused slightly as lenders take inventory.”
16. December is the date for the next meeting of Bank of England’s Monetary Policy Committee. This committee would make a decision on such an increase.
