What end of stamp duty holiday means for UK housing market

The beginning of October marks the end of England and Northern Ireland's stamp duty holiday — a tax break designed to prop up the housing market and help consumers as the economy contracted during the COVID-19 lockdowns.

Chancellor Rishi Sunak announced the cut in July 2020 to help buyers whose finances could have been affected by COVID.

The holiday was extended from 31 March 2021 to the end of June and once more, tapering from June to the end of September as people rushed to market.

Housebuyers could have cashed in on savings of up to £15,000 ($20,230) if they bought at the right time.

The break caused a frenzy in the market, with many using it as an excuse to make long-awaited moves or buy for the first time. A general shift in the housing market also came about because people were seeking more green space and more space in general as lockdowns set in.

Some say that with climbing house prices over the past year the discount was quickly priced in and that it "distorted" the market.

Read more: Build-to-rent: A housing market revelation or the next burden for consumers?

Data from Rightmove released in July showed, at that point, that 1.3 million buyers benefitted from the relief.

Recent data from Nationwide's monthly house price tracker has shown annual house price growth remained in double digits for the fifth month running in September, despite the looming end.

Read more: UK house price growth eases but still hits double digits

In Wales, house prices were up 15.3% year-on-year – the highest rate of growth since 2004. Price rises remained elevated in Northern Ireland at 14.3%. House price growth in Scotland picked up to 11.6% in Q3, in contrast to the previous quarter when it was the weakest performing part of the UK (at 7.1%).

There are now also fewer houses coming to market, as supply dries up following the rush.

How much stamp duty can you expect to pay now the tax break is over?

From 1 July, the threshold up to which buyers in England and Northern Ireland avoided paying stamp duty decreased from £500,000 to £250,000.

From 1 October 2021, rates return to pre-COVID levels. This is what you can expect to pay if you are buying a house now:

• £0-£125,000 — 0%

• £125,001-£250,000 — 2%

• £250,001-£925,000 — 5%

• £925,001-£1,500,000 — 10%

• £1,500,001+ — 12%

The government has a stamp duty calculator on its website so homebuyers can understand the extent of the levy.

Annually, the government takes about £12bn from this levy, according to latest HM Revenue and Customs (HMRC) figures; roughly equivalent to 2% of the tax the Treasury collects.

What are the current market stats?

Research has shown that there are now 9% of properties for sale in England on Rightmove that are £125,000 or below and therefore exempt from stamp duty if being purchased as a main residence.

Meanwhile, more than half (52%) of properties in England are £300,000 or below and therefore exempt from stamp duty for first-time buyers.

Rightmove also found that since the stamp duty holidays were announced in July 2020, national asking prices across Great Britain have increased by over £18,000 (+6%) and just under £10,000 for first-time buyers (+5%).

What can we expect in the coming months?

There are now signs that asking prices are beginning to stabilise, but competition among buyers for homes is double that of pre-pandemic levels, says Rightmove.

One option for homebuyers looking to dodge stamp duty following the deadline, would be to look for homes sold by certain developers which offer an extension of he scheme. For example, Galliard has offered to dock the duty until the end of the year at its Wimbledon Grounds development, where prices start at £450,000.

Another — less restrictive and potentially more attractive — option is to wait it out.

Read more: UK mortgage approvals fall as stamp duty holiday frenzy ends

"Stock shortages will help to underpin prices and the long-term fundamentals remain strong, however, in the short term the next house price moves are more likely to be down rather than up," says Anthony Codling, CEO of Twindig.

Nationwide also predicted that activity was likely to "soften" as the holiday ends, due to the end of the furlough scheme, but that it was still unclear as to what would happen.

"Underlying demand is likely to soften around the turn of the year if unemployment rises as government support winds down, as seems likely," said Robert Gardner, Nationwide's chief economist.

“But this is far from assured. The labour market has remained remarkably resilient to date and, even if it does weaken, there is scope for shifts in housing preferences as a result of the pandemic – such as wanting more space or to relocate – to continue to support activity for some time yet.”

Ross Counsell, surveyor and director at Good Move also cited the end of furlough as a factor that could potentially take the wind out of the housing market's sales.

"These stats should hopefully signal the start of the property market easing over the next few months, so for anyone looking to buy a property this year, I'd advise to hang fire until the end of the year to properly start looking," he said.

Watch: How much money do I need to buy a house?