Nothing lasts forever. And, although it seemed for a while that the Stamp Duty Land Tax (SDLT) Holiday might, it has now finally ended as of 1st October. This means that anyone purchasing a property with a value of more than £125,000 will have to pay stamp duty on it.
Many commentators have credited the SDLT holiday with the resurgent property market we’ve seen in the last year. So what happens now that the holiday has ended? Is the market headed for a major slowdown?
Is There a Precedent for What’s Happening?
Yes, very recently. Cast your mind back to March 2021, when the SDLT holiday was originally slated to end. Figures from that time paint a picture of what could happen during the last few months of this year.
Figures from FT Adviser show that there was a slowdown in mortgage borrowing and property transactions in April (the month after the original end date for the SDLT holiday). At the same time, mortgage borrowing also dwindled. Net borrowing in April 2021 stood at £3.3 billion, down from £11.5 billion in March.
In addition, HMRC figures show house sales dropped by around 50,000 from March to April of this year.
Is a Slowdown Inevitable?
Before we go on, it’s worth adding a caveat. Due to the fact figures are hard to come by this close to the deadline, we simply don’t know the full effect of the SDLT holiday ending yet. We know as recently as August residential transactions were still climbing (up 32% on July) but HMRC is yet to publish figures for September or October.
However, as we’ve already mentioned, if spring 2021 is anything to go by a slowdown is certainly possible. And, there’s also the effect of the end of the furlough scheme to contend with.
As we discussed in a previous blog, household disposable income is a key factor in housing prices and demand. It’s a simple equation: less disposable income, fewer people buying houses. According to research from Bristol University, a 1% reduction in disposable income has historically led to about a 2% reduction in house prices.
Throughout 2020 and most of 2021, household income has stayed stable – thanks in no small part to the government furlough scheme. Even when GDP took a real battering during the darkest days of the pandemic, household income only dropped slightly.
Unfortunately, this has already begun to change. The furlough scheme ended last month and the UK is currently on the precipice of a winter fuel crisis, with gas prices quadrupling in the last year. Both events look set to hit consumers hard, meaning less disposable income and (at least in theory) less demand for property.
So Is There Any Good News?
This has been a fairly depressing read so far but it’s not all doom and gloom. Here are a few reasons to be cheerful.
Firstly, working habits have changed for good. 20-30% of the population are estimated to be working from home permanently (at least some of the time) by the end of 2021, meaning the so-called ‘race for space’ isn’t going anywhere. Plenty of people will continue to lust after a spare bedroom, garden, or place in the country and this should boost demand.
Secondly, interest rates remain at record lows and this isn’t likely to change anytime soon. The Conservative government is desperate to avoid an economic crash on its watch and is painfully aware that raising interest rates risks fiscal suicide. So even without the SDLT holiday, it remains a pretty advantageous time to buy property in the UK, provided you have the capital to do it.
Thirdly, the UK still has a supply problem when it comes to housing. While this might be terrible news for first-time buyers or anyone at the lower end of the market, it’s great for house prices. And, it ensures demand stays relatively high, even with the economic clouds gathering on the horizon.
So what conclusions should we draw?
Well, a slowdown is possible, perhaps even likely. But that doesn’t have to spell disaster. There are plenty of other factors in play that could help keep demand relatively stable. It’s also important to stress that we shouldn’t read too much into an autumn drop off (if it happens). The property market usually slows down from November onwards anyway, especially after such a frenetic summer.
What’s more, it’s worth remembering just how resilient the housing market has proved throughout one of the most unpredictable periods in modern history. If the last 18 months should teach us anything, it’s to proceed with caution when it comes to doomsday predictions.