Releasing the full potential of the stamp duty holiday

The stamp duty land tax (SDLT) holiday is the grandest in a series of policies designed to incentivise investment across the UK. After lockdown measures earlier this year brought market activity to a standstill, the UK government quickly identified the need for increased financial stimulation to avoid extended economic stagnation in the UK.

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Tiba Raja | Market Financial Solutions
29th September 2020
Tiba Raja MFS
"A tax break on property transactions will have little affect if prospective buyers can’t access the finance needed to purchase property in the first place."

And with the UK’s real estate market worth £1,662 billion, the property sector was an ideal industry to target. On July 8th, the SDLT holiday was introduced; exempting the first £500,000 of all property sales in England and Northern Ireland from stamp duty tax until March 31st, 2021.

The immediate reaction from buyers and property investors was seemingly positive. August House Price Indexes from Nationwide and Halifax recorded an average monthly rise of UK house prices of around 2% and a year-on-year increase of 5.2%, respectively; surpassing almost any UK property price growth forecasts for 2020. The buyer demand for housing that had accrued during lockdown was seemingly now being released back into the market – triggering strong house price growth across the UK as a result.

However, Market Financial Solutions recently commissioned research that suggests the SDLT holiday is only having a limited affect. Of the 1,262 homeowners and homebuyers surveyed, a majority (52%) stated that they would like to take advantage of the SDLT holiday but are too concerned about their ability to obtain a mortgage.

A subdued SDLT holiday

A tax break on property transactions will have little affect if prospective buyers can’t access the finance needed to purchase property in the first place.

Unfortunately, this appears to be the case for many Britons. As well as the 52% concerned about their ability to acquire financing referenced above, 43% of the respondents who had tried to buy a property in 2020 reported encountering significant delays or complications when applying for a mortgage from a bank.

This is not entirely surprising. At the height of lockdown, when government agencies were explicitly advising against moving home due to Covid-19 contagion fears, mainstream banks and lenders withdrew their products from the market in order to minimise their risk exposure. But when estate agents were opened their doors once again and the SDLT holiday was implemented, traditional lenders had not properly reconfigured their application review methods for a post-Covid world.

According to MFS’ survey, a third (32%) of prospective buyers said that they had been denied a mortgage outright. Some applicants are even losing out on property purchases not because they’ve been denied, but because another buyer has swooped in while they were awaiting the deployment of their finance. While the practice is generally frowned upon, 45% of the prospective buyers surveyed told MFS that they had been gazumped since the SDLT holiday was introduced.

For all these reasons, and others, some are now turning away from traditional banks and towards more bespoke, flexible lenders.

Our research showed that 36% of UK adults planning to buy a property in the next year are likely to consider alternative finance options like bridging loans. Alternative lenders often utilise more objective application review techniques; evaluating the applicant as an individual, rather than relying on more box-ticking methods. This, in conjunction with potential access to in-house credit lines, means that they can efficiently deploy necessary financing quicker than more traditional lenders, lessening the chances of the relevant borrower being gazumped.

Buyers should not be denied access to the opportunities available through the SDLT holiday due to factors entirely outside of their control. They should certainly not be victim to the collapse of their property chain due a mortgage application being denied or delayed.

As such, it is paramount for lenders to keep lending in order for the full potential of the SDLT holiday to be realised. If the right action is taken, we should all be able to enjoy the benefits of a sustained UK property market resurgence for the foreseeable future.

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