First published in Mortgage Finance Gazette
By Robin Fieth, BSA Chief Executive
Many people in the housing industry, including the BSA, are concerned about housing transactions not completing by the end of the stamp duty holiday on 31 March 2021. The BSA has been talking to HM Treasury advocating that the best way to avoid a cliff-edge is to taper the removal of the stamp duty break.
Our suggestion is simple but sensible. Any transaction where the mortgage approval has been granted by the end of March should be given an additional three months to complete. That way the buyer can still benefit from the temporary reduction in stamp duty and have extra time to complete - up to 30 June 2021.
As well as preventing a market damaging cliff-edge, this would also help to reduce operational pressures before the deadline, particularly as some social distancing precautions are still likely to be in place; and many people will still be working from home.
House buying can be delayed for various reasons and if there is a chain, it takes just one delayed or abandoned transaction to hold-up or collapse the chain. If buyers miss out on the stamp duty holiday and suddenly have to find a few more thousand pounds to pay the tax, some may not be able to or wish to.
In addition, with many people being furloughed and even losing their jobs, some buyers are pulling out of transactions as they are uncertain about their future finances. Let’s not add to market disturbance with stamp duty too.
Stamp Duty Land Tax covers England and Northern Ireland but our campaign to taper the removal of the stamp duty goes further. It is also extended to the Parliaments in Wales regarding Land Transaction Tax and Land and Buildings Transaction Tax in Scotland.
Rise in housing transactions
The stamp duty holiday, which began in July, has certainly been a key factor in igniting the housing market following the first lockdown and subsequent release of pent-up buyer demand.
Housing transactions plummeted during lockdown with HMRC data showing April’s home sales at just 42,160, less than half the number in March. Since then, transactions have risen each month and in October were at 105,630 - the highest number since the 176,870 peak in March 2016.
That month was significant because on 1 April 2016 a stamp duty surcharge of 3% was added to second properties resulting in a stampede to complete transactions before the deadline. With such high housing transaction numbers, it is hardly surprising that gross lending in March 2016 remains the highest monthly figure since the financial crisis.
I now have a feeling of déjà vu with buyers once again keen to complete before the stamp duty change next March. From past experience we know that large changes in stamp duty rates can have a significant effect on buyer behaviour and the timing of purchases.
Delays in mortgage approval to completion
Building societies have been busy supporting people in buying their homes during this extraordinary year, with a market share of 28% of mortgage approvals in the third quarter of 2020. This is up from 26% in Q3 last year and the demand has remained strong in recent weeks.
Because of Covid and the strong housing demand there have been some delays preventing approved mortgages moving to completion. Valuations, conveyancing and searches have all been impacted by the virus.
The volume of mortgage completions usually tracks the volume of mortgage approvals fairly closely, with a lag of a month or so while the conveyancing and searches take place. You can see from the chart below this pattern has changed since the first lockdown last March.
Since then, the BSA estimates that a substantial pipeline of around 100,000 mortgage approvals valued at over £20 billion have accumulated. This is likely to grow in the coming months.
Housing demand could fall
The temporary stamp duty rate reduction has helped to support activity in the housing market since the summer. This is reflected in the BSA’s quarterly Property Tracker survey. In September there was a marked improvement in sentiment with 37% of people agreeing it was a good time to buy property, up from 25% in June.
However, sentiment changed in December and went down to 27%. This suggests the boost in property sales caused by the stamp duty holiday may be short lived. People are realising that buying a house now does not necessarily guarantee they will complete the purchase before the stamp duty deadline.
The stamp duty holiday has achieved what it set out to do and boosted the sales of homes. We expect the number of housing transactions will start to fall and hope the government will consider tapering the end of the stamp duty holiday to avoid inevitable disruption.