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Has the Stamp Duty holiday impacted the property market?

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The Stamp Duty holiday has certainly helped stimulate the housing market but it has also put lenders under pressure to service the spike in applications. Approaching the 31 March deadline, the pressure may well get more intense.

After the introduction of the scheme as part of the Chancellor’s Summer Statement we’ve seen evidence of increased activity. Bank of England figures showed a month-on-month increase of 6.2% in mortgage lending throughout August to £18.8bn, whilst house purchase approvals hit a 13-year high. During July, 66,300 purchases were approved, and this rose by 31% with 84,700 approvals recorded in August. For pre-lockdown comparison, August activity was around 21% above February levels.

Rishi’s plan has clearly worked because at first glance it would seem that the Treasury won’t see money raised from Stamp Duty but the tax take might actually increase; the current demand is being driven by movers, some of whom have used lockdown as an opportunity to reassess what they want from a home while spending less. This has translated to an uptick in the purchase of properties above the £500,000 threshold so Stamp Duty is paid. In addition, the move will inject money into the economy as a welcome side-effect of home-moving – legal fees, decorating and furniture buying being just a few examples.

This steep increase in approvals is an important finding because, while further evidence of a V-shaped recovery, the lag between approvals and completions means that it looks like the system will be extremely busy over the coming months. While a buoyant market is clearly a good thing, we need to consider the wider implications.

While many of us have adapted well to working from home, it would not be unreasonable to suspect that some sections of the industry are not currently capable of operating at full capacity. With reports of backlogs across many of the sector’s separate but interdependent sections such as Land Registry and conveyancing, the current upward trend in activity poses a potential problem for those hoping to take advantage.

I’m sure brokers are well aware of this and are working hard to navigate frequent product and criteria changes as lenders balance operational constraints, but they have a key role to play here. By advising clients to act now, allowing for the extra time it may take to complete, they can help minimise a pre-deadline surge in demand that would be difficult for the system to process, potentially leaving would-be purchasers feeling let-down that they missed out on a saving.

This saving, expected to be around £4,500 on average, along with low interest rates could be a gift and a curse, however. There are examples highlighting how the perception of bagging a bargain is actually leading to some buyers entering bidding wars that result in inflated prices being paid.

This does not appear to be driven by buy-to-let investors who are said to be conservative and reluctant to enter bidding wars. Instead, they are waiting for properties that require renovation so offer more value in the longer term. While some may argue that investors are opportunistic - you may remember calls for them to be exempt from the scheme - it demonstrates how the increasingly professional landlord base is working with specialist lenders whose prudent approach helps to drive up standards

This is something that should be welcomed because the reality is that the PRS is an essential aspect of housing. The Stamp Duty holiday has helped many step on to the first rung of the property ladder but for others it has brought the difficulty into sharp focus.

Despite the Stamp Duty saving, Zoopla data has concluded that there is a widening gap between existing homeowners and first-time-buyers (FTB).

The demand in FTB activity peaked when lockdown was lifted but this has now waned. With some of the sectors that employ large numbers of younger adults hardest hit by the pandemic, it has not been possible for some to save for the larger deposits now needed due to the reduced availability of higher loan to value mortgages.

And some of those turning to the bank of mum and dad for help are being told that reserves aren’t what they once were; the Institute of Fiscal Studies has warned that falling share prices could result in significant numbers of over 55s being worse off than planned in retirement.

And while we await further details of Boris’ ‘Generation Buy’ scheme, all of this supports the notion that landlord investment, resulting in an increase in decent quality, flexible housing is an important aspect of the housing shortage solution. The PRS offers an alternative option for FTB currently unable to get on the property ladder as well as those unwilling to commit during such times of uncertainty. An often-overlooked viewpoint is that it is also a longer-term preference for many across the UK.