The stamp-duty holiday was implemented in July 2020, with buyers given a tax break on the first £500,000 of a property's purchase price. This offered a potential saving of up to £15,000. The scheme was tapered from July 2021, with tax relief reduced to the first £250,000 of the property price, a maximum saving of £2,500. As of 1 October 2021, stamp-duty returns to pre-pandemic rates, with the first £125,000 exempt from tax (£300,000 for first-time buyers). For more information on the rules, read our article "Everything you need to know about stamp duty".
What does the end of the stamp-duty holiday mean for home buyers?
The housing market has been a hotbed of activity since it reopened in June 2020, following the first national lockdown. This was driven by a combination of pent-up demand, the stamp-duty holiday and a desire for outside space encouraging more people to move out of city centres. Ironically, data indicates house prices went up by far more than the potential £15,000 stamp-duty saving in the year to the end of June 2021, with demand far outstripping supply for housing stock in some coastal and rural areas. Overall, figures from Nationwide show house prices are now on average around 13% higher than they were in early 2020, before the pandemic hit.
While house-price inflation has been good news for sellers, it has priced a growing number of buyers out of the market, particularly first-time buyers. Those who have been able to buy a property have typically had to take on a larger mortgage, which has been facilitated by the return of 95% LTV mortgage products and more generous income multiples. In fact, according to Nationwide, mortgage payments as a proportion of take-home pay are above their long-term average in 10 out of 13 regions. Moreover, a 20% deposit for an average first-time buyer is now around 113% of gross income, which is at an all-time high.
The good news for buyers is the softening we have seen in house-price growth in September and it is anticipated to continue over the coming months. While commentators don't generally believe there will be a sharp correction in house prices, the consensus seems to be that demand will reduce over the course of the rest of this year, with unemployment figures playing a key role in what will happen at the beginning of 2022.
For more detailed analysis, read our frequently updated article "What is going to happen to UK house prices?"
Is now the right time to buy?
If you are thinking about buying a property, an important step is working out how much you will need to borrow on your mortgage. Unless you are moving within the same area and have enjoyed a similar level of house price growth in your existing property as the ones you are looking to buy, you may find your budget doesn't stretch as far as it did pre-pandemic. The good news is there has been a price war between lenders and there are now a plethora of deals on 2- and 5-year fixed rate mortgages at below 1%. It's important to bear in mind, however, that rates are likely to rise at some point, so you need to carefully consider the affordability of any loan you take on. A good mortgage broker, such as Habito*, will be able to find the best deal for your circumstances and advise you on how much you are likely to be able to borrow.
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