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The Chancellor’s summer economic update – what was said about housing?

  1. 10 July 2020
  2. By Daisy Stephens

We analyse the Chancellor Rishi Sunak’s recent economic address to the House of Commons, where he outlined a Stamp Duty holiday for 90% of buyers and a green homes scheme.


In what effectively amounted to a mini-Budget, the Chancellor Rishi Sunak used his summer economic update to make a number of major housing announcements which would typically have been headline news.

The fact that a Stamp Duty holiday for most buyers was actually only mentioned at the end of his speech, and in a slightly throwaway manner, reflects the extraordinary Covid times we live in.

Here, we explore what the Chancellor had to say about housing in his big address to the Commons.

Most buyers given a temporary Stamp Duty holiday

In a widely expected move, given it had been speculated in the press for days before, Sunak announced a Stamp Duty holiday for those buying homes worth up to £500,000, which will continue until the end of March 2021.

The Chancellor insisted that, as a result of this, nine out of 10 main homes sold between now and the end of March next year will be exempt from Stamp Duty. Most First Time Buyers were already exempt from paying Stamp Duty on homes worth up to £300,000 (although this varies greatly by region), but this holiday is much wider in scope than the abolishment announced by Philip Hammond in November 2017, with all buyers included.

Second steppers, downsizers, landlords and investors will all benefit, although the Treasury also later clarified that the additional Stamp Duty surcharges will remain as before. This means buyers of second and holiday homes will still face a 3% surcharge – however, just 3% will be paid for properties valued at up to £500,000, as opposed to the 5% paid before the adjustment, offering a double saving to investors.

As is always the case with Stamp Duty alterations, the threshold has been upped with immediate effect, from £125,000 to £500,000.

While Sunak’s announcement regarding Stamp Duty relates only to England and Northern Ireland, it was expected that the devolved administrations in Scotland and Wales – who set their own equivalent Stamp Duty-esque taxes – would quickly fall in line, as is normally the case after a major Stamp Duty change from the Westminster government.

This hasn't quite happened, although in Scotland - after initial speculation that no change would take place - it was announced a day after the Chancellor's speech that buyers in Scotland would benefit from a temporary cut to the transaction tax on house sales.
 
Kate Forbes, the Scottish Government's Finance Secretary, revealed that the starting point for Land and Buildings Transaction Tax (LBTT) - Scotland's equivalent to Stamp Duty - would rise from £145,000 to £250,000. As a result, Forbes said, eight out of 10 house sales in Scotland would be exempt from the tax completely.
 
The change isn't immediate, however, due to 'administrative reasons', but Forbes insisted it will be introduced 'as soon as possible'.
 
The Scottish Government also revealed that it will spend an extra £50 million on the 'first home fund' scheme to help First Time Buyers with their first house purchase.
 
In Wales, where Stamp Duty is also devolved, and is known as Land Transaction Tax, there has been no confirmation of a similar Stamp Duty holiday as of yet. But calls have been made for the Welsh government to follow suit

How did the industry react?

Mark Hayward, the outgoing chief executive of trade body NAEA Propertymark, said the group welcomed the Chancellor’s announcement on Stamp Duty that raises the threshold at which buyers will pay Stamp Duty to £500,000.

“These measures will enable people looking to buy a home to have the confidence and stability to be able to move forward with their purchase, which in turn will have a knock-on effect on the wider economy as people buy white goods and furniture,” Hayward commented.

He added that, while the market is moving well at the moment, once the furlough scheme has ended and the anticipated recession hits, the market could require additional financial impetus.

“Therefore, it is right that the sector is given the support and tools it needs to rebound over the next nine months,” he concluded.

Mary-Anne Bowring, group managing director at Ringley and creator of automated lettings platform, PlanetRent, also said the Chancellor’s proposals to exempt most homebuyers from paying any Stamp Duty under plans to kick-start Britain’s economic recovery was welcome news.

“A Stamp Duty holiday would no doubt cause a rush of transactions and help breathe life into a housing market that has been put into deep freeze in an effort to battle coronavirus,” she said. 

“The government should be looking at long-term solutions as well as short-term sticking plasters when it comes to fixing the UK housing market.”

David Baybut, partner and head of real estate at Stephensons Solicitors LLP, added: “If this (the Chancellor’s announcement) had been delayed until the autumn, it could well have created a bottleneck of deals with homebuyers holding off for a better deal later in the year but instead comes at just the right time to encourage movement in the market.”

He continued: “Amongst the groups who will hopefully benefit the most are those on furlough, who may have received lesser mortgage offers because of their reduced salaries. Not having to pay Stamp Duty could help bridge that gap and make it possible for them to proceed with their purchases after all, which is great news for them but also for the wider economy.”

Will it help the market?

Visits to Rightmove – which has already been experiencing a huge rise in traffic since the property market reopened in mid-May – soared by 22% in the first 30 minutes after the announcement of a Stamp Duty holiday.

The portal has calculated that savings for buyers - assuming current asking prices don’t increase as a result of optimistic sellers - ranged from an average of £646 in the north east of England to £15,000 in London.

Rightmove says, in total, it currently plays host to some 510,000 properties under £500,000, making up 81% of all homes for sale in England. On average – before Sunak’s announcement - some 84% of all enquiries to the website were about sub-£500,000 units. 

The portal’s commercial director Miles Shipside said the Stamp Duty changes will help to keep the ‘nation and wider economy moving because keeping the current momentum going will help prevent destabilising falls in property prices as unemployment grows, and enable a quicker economic recovery.’ 

He added that lockdown had prevented 175,000 prospective sellers from coming to market and hopes the Stamp Duty holiday will provide the spur for those missing movers to come to market.

“They will find there’s currently record demand for their properties from prospective buyers, with Rightmove enquiries to agents now double what they were before lockdown.”

However, not everyone agreed it was a good thing. Mike Scott, chief property analyst at online agency Yopa, warned that the likely rush of transactions when the new Stamp Duty holiday ends next spring will be too big for conveyancers, surveyors and mortgage lenders to handle.

While he welcomed Sunak’s announcement, he qualified this by saying: “When the Stamp Duty holiday comes to an end at the end of March, the market will be distorted as everyone rushes to complete their purchase in time. Further, there may not be sufficient capacity for conveyancers, estate agents, surveyors or mortgage lenders to cope.”

Is a green revolution on its way?

Sunak’s other big pledge for housing was the confirmation that the government will introduce a £2 billion ‘Green Homes Grant’ to help green the property market.

Homeowners and landlords will be able to apply for £5,000 vouchers through the £2 billion scheme to make their homes more energy efficient.

The grants being provided by the government will cover at least two-thirds of the cost of the work - for example loft, wall and floor insulation - up to a limit of £5,000 per home. Low-income households, meanwhile, will be eligible for vouchers covering the full cost, up to £10,000.

Ahead of its launch, which is expected to be in September, the Treasury will provide further details on the design of the scheme and how it will work in practice.

Along with the changes to Stamp Duty, the measures to improve the energy efficiency of Britain’s housing stock had also been heavily trailed in the media before Sunak’s Commons speech.

During his address, the Chancellor said. “Taken together, we expect these measures to make over 650,000 homes more energy efficient, save households up to £300 a year on their bills, cut carbon by half a megaton per year (equivalent to taking 270,000 cars off the road), and most importantly right now, support around 140,000 green jobs.”

This latest move follows Boris Johnson’s recent ‘new deal’ speech about rebuilding the country post-coronavirus, where he made a big deal of building back better, greener and faster.

As ever, it will only become clearer over time just what impact the Stamp Duty holiday and the new green homes initiative will have, but they are certainly bold pledges from a government which is facing a whole host of big challenges ahead.
 

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