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The end of the Stamp Duty holiday and what it means for the private rented sector

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The Stamp Duty holiday is coming to an end, so what does this mean for the buy-to-let market? Our Mortgages Managing Director, Richard Rowntree, looks at the latest industry figures and shares his predictions for the foreseeable future.

It’s the beginning of the end; although we’ve known this day has been coming for some time, it’s difficult to talk about the current buy-to-let mortgage market without discussing the tapering of the Stamp Duty holiday because it’s impact on the entire property industry has been quite significant.

Announced around this time last year as part of the Chancellor’s Summer Statement, the scheme aimed to stimulate the property market which all but ground to a halt as a result of what we naïvely thought would be the first and last Coronavirus lockdown.

It has certainly done that -  Bank of England figures published in June this year revealed that the value of gross mortgage advances in the first quarter of 2021 was £83.3bn which represented a 26.5% increase on the same period a year ago, and the highest level since 2007.

This increase in activity came as little surprise to the sector; with delays in processing applications across all sections of the industry, advisers urged borrowers to get their application in early to avoid missing out on the Stamp Duty savings on offer - our estimates revealed that almost two thirds of buyers were relying on another party in a chain to complete their purchase before the original 31 March deadline.

With a boost to the economy worth billions at stake and under increasing pressure from the property industry, MPs changed the original ‘cliff edge’ to what we now know is a tapered wind-down finishing at the end of September 2021.

If we look at industry figures, we see that lending for UK-wide buy-to-let purchases has started to drop off with £1.30bn in April down from the peak of £2.0bn in March. In addition, there are some early indications that buyers and sellers are renegotiating terms under an impression that they have missed the boat on any Stamp Duty savings.

So, does this point to a substantial drop in purchase activity after the initiative ends in the Autumn, similar to the fall from £4.30bn in March 2016 to £0.60bn the following month, coinciding with the introduction of the 3% surcharge on the purchase of second residential properties?

Richard Rowntree
While I imagine the elevated levels of purchase activity we have seen of late will drop off, I don’t think we’ll witness such a steep decline as we saw five years ago.

This is because while the Stamp Duty holiday has undeniably provided the property market with a significant stimulus, it hasn’t been the only driver of demand.

For the past year we have sought to understand how Covid-19 would change how and where we live. The surge in demand seen across both owner occupied and the private rented markets show that the pandemic has had an almost immediate influence on our housing preferences but there will be a lasting legacy. 

Some of the most recent research on the subject comes from Santander’s ‘Life after lockdown’ report.

The researchers found that the number of UK adults working from home has risen from 1.4 million before the pandemic to almost 24 million today. Nearly half (47%) hope to work from home to some degree and we’ve seen more companies signal that they will adopt some form of office-home hybrid working model long-term.

For me, this is an example of the type of shift that I think will mean demand will continue for some time after the Stamp Duty holiday ends, albeit at a lower level, as we will continue to see people looking for properties with home office space in locations they previously might not have considered.

So, whilst it’s the beginning of the end of the Stamp Duty holiday, the flexibility of privately rented housing means landlords, supported by lenders, will have a place in responding to the changing needs of renters for the foreseeable future.