How Companies Expect to Benefit from the Stamp Duty Holiday Extension

Last week, Chancellor Rishi Sunak announced that the stamp duty holiday would be extended. Originally due to end on March 31st, it has now been extended until June 30th 2021. Under the stamp duty holiday, the nil rate band is set at £500,000 meaning 0% stamp duty for any properties at this value or less. After June, the nil rate band will be set at £250,000 until the end of September, after which it will return its former value of £125,000.

Coupled with this, Sunak announced a new mortgage scheme in which the necessary deposit for borrowers was lowered to 5%, instead of the typical 10%, for properties worth up to £600,000. This is to encourage more people to join the property ladder in an attempt to shift from “generation rent to generation buy”. However, this has also put added pressures on lenders.

Since the announcement, mortgage brokers and secured loan brokers have seen a surge in enquiries with firms reporting a 35%-50% increase. However, the majority of those are said to be from clients with a low deposit, encouraged to seek a mortgage thanks to the government-backed 95% mortgage scheme.

Lenders who are wary of low-deposit borrowers, are at even more risk with clients offering only a 5% deposit. However, the government is mitigating the risk for borrowers by offering a government guarantee. Banks have been incentivised by the government to offer these lower-deposit mortgages with the guarantee of protection from potential losses. So far, some of the nation’s major banks have agreed to participate including HSBC, Santander, Lloyds and NatWest.

One of the key ramifications of the stamp duty holiday extension is that it has driven up house prices. This means that many first-time buyers, despite the intentions of the scheme, are actually locked out of the market. Although more people can enter the property market, the entry barrier will be higher than usual.

In 2020, more than 820,000 mortgages were approved as the property market experienced a surge. This was especially true as the deadline of March 31st loomed. Bank of England showed a slight dip of mortgage approvals for house purchases in January (99,000 down from 102,800). That being said, as rumours emerged of a stamp duty holiday extension, interest piqued again with Rightmove reporting their busiest day ever on February 17th.

However, as the stamp duty holiday continues, so do the ongoing pressures on many elements of the housing chain. With an increased demand comes an increased burden on the operations processes. Conveyancing solicitors are feeling the effects of the increased demand.

The increased demand in mortgage approvals also means a delay in both the approval process and the local searches and inspections. Property transaction time has increased from an average of 12 weeks to 16 weeks. In many areas of the country, this is further exacerbated by under-resourced local authorities meaning that land and property searches are taking months.