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What happens if buyers can’t complete before the Stamp Duty deadline?

  1. 22 October 2020
  2. By Jeremy Greer

This years stamp duty holiday means that buyers don't have to pay stamp duty when purchasing property under £500,000. But what happens if the purchase doesn't go through before the holiday ends on 31st March?

The Stamp Duty holiday, announced by Chancellor Rishi Sunak in July, has given a significant boost to the property market and helped to drive demand and sales in all parts of the market.

However, it’s time-limited – coming to a conclusion on March 31 2020 – after which the threshold at which people pay Stamp Duty in England and Northern Ireland will return to £125,000, down from £500,000.

What about those, though, who won’t be able to complete before the deadline? And what of the proposals to extend the holiday? Equally, will there be a drop in the market if people can’t complete as a result of the Stamp Duty holiday being stripped away?

What is the Stamp Duty holiday?

In a widely expected move, Sunak used his summer economic update – effectively a mini-Budget – to reveal a Stamp Duty holiday for all those buying homes worth up to £500,000.

At the time, the Chancellor said that nine out of 10 main home buyers would now be exempt from paying any Stamp Duty until the end of the deadline.

As a result of the stamp duty holiday, Rightmove calculated that purchasers in London could save as much as £15,000. Visits to the portal soared in the aftermath of the announcement, and all the evidence since has suggested the holiday has given a massive boost to the property market, sustaining its post-lockdown mini-boom into something more long-term.

In August, it was revealed that the number of buyers looking for homes had surged in the month since the Chancellor made his announcement, with demand for properties costing between £500,000 and £750,000 showing the biggest uptick.

According to Hamptons International, the number of people registering to buy across the country was up by 38% on August last year, boosted by the stamp duty holiday.

Buy-to-let investors, meanwhile – although still having to pay the extra 3% Stamp Duty surcharge when purchasing a new home – have also been boosted by the Stamp Duty holiday.

Rightmove also recently revealed that the Stamp Duty holiday is helping to drive house prices. It found that house prices are rising at their fastest pace in four years, with asking prices for October up 5.5% on a year ago.

The portal said that the average price of a property being listed on the market had increased to a record £323,530 this month, up 1.1% from September, and insisted that a ceiling hadn’t been reached and more was to come.

Meanwhile, the average time for a property to be sold has dropped to 50 days. This is ‘leaving agents with more properties marked as sold than available for sale for the first time ever’, Righmove added.

Demand is showing no signs of slowing down, either, with Rightmove revealing that it had witnessed a nearly 50% traffic increase in September compared with the same period last year. That represented the biggest year-on-year rise since 2006.

Rightmove expects the annual rate of increase to peak at 7% before the end of year, although the Times reports that there are some signs that the pace of growth in the market is beginning to ease.

Holiday extension urged

Many have called for the Stamp Duty holiday to be extended to avoid a sudden cliff edge, where lots of transactions desperately try to get over the line at the last minute. As Stamp Duty is only paid out upon completion, if a home isn’t completed before the March 31 deadline hits, it would appear normal rates of Stamp Duty would then apply, even though the purchase has been in motion for some time and started while the holiday was in place.

Mike Scott, chief property analyst at online agency Yopa, warned at the time of the Stamp Duty holiday announcement that the likely rush of transactions when the holiday ends next spring will be too much for mortgage lenders, conveyancers, estate agents and surveyors to cope with – even more so now in light of extra Covid restrictions and job losses.

Back in July, he said: “When the Stamp Duty holiday comes to an end, 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.”

Similar words are now being echoed by conveyancing and estate agent trade bodies. NAEA Propertymark, in its submission to the government ahead of the Comprehensive Spending Review 2020, has called for an extension to the current stamp duty holiday. It wants the holiday to be extended for at least another six months beyond its current March 2021 deadline.

“Moving to a new home has enormous knock-on benefits for the wider economy and a continued holiday on property tax would increase consumer confidence and encourage both upsizing and downsizing,” NAEA Propertymark said.

Similarly, a number of conveyancing bodies have warned that property buyers risk missing out on stamp duty savings because of backlogs in the property market, caused by Covid and record demand.

The Society of Licensed Conveyancers (SLC), the Bold Legal Group (BLG) and the Conveyancing Association (CA) have called on the government to extend the holiday. In a joint statement, they requested that the existing stamp duty holiday is ‘extended to avoid further disappointment in the spring’.

Simon Law, incoming chair of the SLC, said the backlogs in the system – caused by demand of the like not seen since the last recession, and driven by the overspill of transactions put on hold during lockdown and people reappraising where they want to live as a result of Covid – were being compounded by the Stamp Duty holiday, which had ‘added fuel to the fire’.

“This and the impact of Covid-19 on the legal profession has resulted in conveyancers being stretched to the limit,” he added.

How can buyers avoid missing the deadline?

The end of March might still feel quite far away, but property transactions typically take a few months to complete – and potentially even longer than that given the backlogs in the system, the pressures faced by those responsible for making a transaction happen, and the tighter restrictions being re-introduced across the UK.

As a result, buyers are being warned to act now to avoid disappointment. Previously, NAEA Propertymark said home sellers and buyers needed to act quickly if they wanted to take advantage of the Stamp Duty holiday, warning that sellers should have listed their homes by the end of September to maximise their chances of getting a transaction over the line before March 31.

Meanwhile, a survey from Legal & General Mortgage Club says that homeowners planning to move and benefit from the current stamp duty holiday should begin their homebuying journey by November 1 or risk missing out.

The findings showed that those who need to sell their home and find a new property must allow almost four months to complete their housing transaction, as the housing market continues to experience high levels of demand. 

Legal & General Mortgage Club polled a range of stakeholders in the housing market - including estate agents, surveyors, conveyancers and housebuilders - to build an estimated timeline for a typical housing journey in the current environment.

Before the pandemic, a mortgage application for a consumer with straightforward circumstances took less than two weeks (61%) to move to mortgage offer, but since the mortgage market reopened advisers have found that this process is taking much longer. Some 30% claimed it is taking three to four weeks, with a further 32% saying it is taking four to eight weeks.

The mortgage journey is not alone in facing delays, with conveyancers indicating that the time between offer and exchange is now taking three weeks, while the period between exchange and completion stands at one to two weeks.

Estate agents, meanwhile, said that the average time between receiving an offer on a property and completion has risen by some eight weeks. As a result, the average homebuying timeline could be 15 weeks, rising to 17 weeks for buyers with more complex requirements. This timeline doesn’t take into account the festive season or the impact of a possible second lockdown, which also need to be factored in.

L&G has suggested that buyers need to begin their search by November 1 to ensure there is enough breathing space should any problems arise before completion.

Kevin Roberts, director at Legal & General Mortgage Club, said: “As homebuyers rush to take advantage of the stamp duty holiday, policymakers need to consider if a tapering of the stamp duty deadline is needed instead of a hard deadline. We need to avoid those moving or purchasing a home missing out through delays after March 31 when the holiday ends.”

There is no suggestion currently that there will be a tapering or extension of the Stamp Duty holiday, but pressure is likely to intensify as the deadline nears.

Concerns will be there that the property market’s remarkable recovery could be compromised if there’s a sudden drop-off in demand, or transactions fail to complete with the extra funds required to cover stamp duty costs.

A balancing act will be needed from the Government, to ensure they start receiving vital income from Stamp Duty again while not damaging the market.
Note: As of November 2020, the Stamp Duty holiday has not been extended, but we are monitoring the situation.

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