In April 2020, housing sales had fallen by 60 per cent on the previous year. Economists feared the housing market might not recover, adding the threat of negative equity to a country already facing the financial turmoil caused by lockdown measures. The response of the then-chancellor Rishi Sunak was to scrap stamp duty on homes worth £500,000 and below from 8 July that year. But, crucially, there was a clear deadline: buyers had less than a year in which to save up to £15,000.
The result was immediate and explosive. In less than a year monthly housing transactions went from the lowest level on record to the highest on record: 206,000 homes were sold in June 2021, more than twice the figure for June 2019, as buyers rushed to complete before the tax was reinstated.
Rising interest rates and more expensive mortgages have once again depressed prices, and in response Rishi Sunak and his chancellor, Jeremy Hunt, have repeated the measure. They decided to scrap Liz Truss’s plans announced during the mini-Budget – to ditch stamp duty completely for properties worth less than £250,000 – but not until 2025. Once more, this creates an artificial deadline that will likely stimulate the housing market as buyers rush to complete transactions before the tax burden rises again.
The problem is that this pushes buyers to make decisions. By June 2021, prices were more than 13 per cent higher than they had been a year earlier. In other words, people were paying 13 per cent more for houses in order to save 5 per cent on stamp duty. “I could not understand the amount of people who fell for it,” admitted James Hyman, head of residential at the estate agent Cluttons. “People who were spending a million pounds thought they needed to get their transaction across the line… If they had held on for six months, they might have been better off.”
In his Autumn Statement, Hunt argued that the delay will create “an incentive to support the housing market and all the jobs associated with it by boosting transactions during the period the economy most needs it”; the Bank of England has warned that the UK faces the longest recession in at least a century, and economists have predicted that prices will fall by as much as 15 per cent over the next 18 months.
But the policy will also create an incentive for large numbers of people to buy houses before 31 March 2025. By sheer coincidence, the next general election will happen by January 2025.
“If I were cynical, I’d observe that the proposed hike in stamp duty is slated for after the next general election,” I was told by Lawrence Bowles, director of research at Savills. The government could do worse than to use the housing market to drum up support from voters: tracking house prices is, after all, a national pastime, and voters have a tendency to blame the government if their house’s value hasn’t risen.
The winning party, however, will be left with the hangover from the policy. House price growth will probably slow, if not reverse, after the deadline. This happened after Sunak’s last stamp duty holiday: by June 2022, house price growth had almost halved from a year earlier, to 7.8 per cent. Admittedly, it then climbed to 15.5 per cent in July, its highest since at least 2006, but this may have been caused by factors such as pent-up demand and moving decisions made during the pandemic; next time, the market will be very different.
So far, the move has failed to provide much of a stimulus to the housing market. “I don’t think I’ve seen one article or come across one person who has said, ‘Actually, this has been helpful,’” said Hyman. The increase in mortgage prices – last week the comparison website MoneyFacts said the interest rate on the average five-year deal had dropped below 6 per cent for the first time in seven weeks – means any upsurge in transactions has failed to materialise. In fact, figures published this morning (28 November) by Zoopla showed demand had fallen 44 per cent since the mini-Budget.
Hyman believes demand, and by extension price growth, will continue to be constrained until 2024. “By the time stamp duty holiday is coming to an end, the market is probably going to be bottoming itself out,” he said. “In theory, it could be a catalyst that means house prices start to bounce back.”
In the meantime, said Bowles, the people who will capitalise are not those who need homes the most. “The real winners over the next 18 months or so are those in a position to buy with cash,” he explained. “With rates so high, they’ll see a lot less competition from mortgaged buyers and can be in a position to move quickly when the estate agent’s three best friends of death, debt and divorce inevitably bring stock to market.”
The other winner, of course, will be Rishi Sunak, whose decision to kick the housing crash into the next government may have delayed a difficult decision for long enough that he can avoid making it altogether.