What the Stamp Duty Land Tax changes mean for you
by Ian Henning | Jul 14, 2020
Chancellor Rishi Sunak brought in the biggest change to Stamp Duty since the last shake up in December 2014. The key driver this time around is to restart the housing market, which has slowed to a crawl since the lockdown began in March due to COVID-19.
With data now starting to come in you can see that the fall in transactions has been seismic with transaction volumes decreasing from around 100,000 per month to just over 40,000.
This is a fall of nearly 50% when looking at year-on-year figures comparing May 2019 to May 2020.
Non-residential purchase transactions have also not been spared with transaction volume decreasing from around 10,000 per month to just over 5,000.
*Source: GOV.UK housing data
This is a year-on-year fall of around 42%.
To help bring buyers back, the Chancellor has increased the nil rate band for Stamp Duty purchases to £500,000. Therefore, anyone looking to purchase a £500,000 property will pay £0 Stamp Duty compared to £15,000 from 7 July 2020.
This will also bring savings for anyone looking to purchase over £500,000, which will be welcomed by all buyers. Here is a snapshot of the new rates and savings:
New Stamp Duty holiday rates
| Property purchase price | Stamp Duty rate |
|---|---|
| £0 to £500,000 | 0% |
| £501,000 to £925,000 | 5% |
| £925,001 to £1.5 million | 10% |
| £1.5 million+ | 12% |
*For purchases between 8 July 2020 and 31 March 2021
How much will the Stamp Duty holiday save buyers
| Purchase price | Old rates | New rates |
|---|---|---|
| £100,000 | £0 | £0 |
| £200,000 | £1,500 | £0 |
| £300,000 | £5,000 | £0 |
| £400,000 | £10,000 | £0 |
| £500,000 | £15,000 | £0 |
| £600,000 | £20,000 | £5,000 |
| £700,000 | £25,000 | £10,000 |
| £800,000 | £30,000 | £15,000 |
| £900,000 | £35,000 | £20,000 |
| £1,000,000 | £43,750 | £28,750 |
| £1,100,000 | £53,750 | £38,750 |
| £1,200,000 | £63,750 | £48,750 |
| £1,300,000 | £73,750 | £58,750 |
| £1,400,000 | £83,750 | £68,750 |
| £1,500,000 | £93,750 | £78,750 |
*New Stamp Duty rates apply to houses purchased between 8 July 2020 and 31 March 2021
The additional 3% stamp duty will still apply on any purchase that is deemed to be a buy-to-let purchase (where you already own more than one property) or a second home.
Buy-to-let and second home Stamp Duty holiday rates
| Property purchase price | Stamp Duty rate |
|---|---|
| £0 to £500,000 | 3% |
| £501,000 to £925,000 | 8% |
| £925,001 to £1.5 million | 13% |
| £1.5 million+ | 15% |
*For purchases between 8 July 2020 and 31 March 2021
Everybody wins with this move as your first-time buyers/home movers will pay less with the 0% moving up to £500,000. Previously this was only up £125,000 with Stamp Duty applying as follows:
- 0% on properties worth up to £125,000
- 2% up to £250,000
- 5% up to £925,000
- 10% up to £1.5 million
- 12% above £1.5 million
As the 0% band now applies up to £500,000, even buy-to-let investors, or anyone looking at a let-to-buy, will benefit from the tax saving.
We feel this is a great move by the chancellor as Stamp Duty has always been an unwelcome tax. With this applying up to 31 March 2021, it gives buyers ample time to find a suitable property and look to complete a purchase before the deadline.
Lenders are also open to lending at present and — although we saw rates being removed and loan to values reducing as lockdown hit — with valuations taking place again, lenders have returned to the market with purchase rates up to 90% available, however 95% remains limited. We have seen lender times increase slightly during lockdown as they operating remotely.
With the reduction in transaction volumes this has depressed house prices and we are starting to see reductions in certain areas:
Source: BBC news
We would recommend prospective buyers start looking now as most purchases can take up to six-to-eight weeks when there is no chain involved. If you enter a long chain where you are needing to sell and the vendor on your onward purchase is also looking for a new property, this can easily push these timescales up. To be safe anyone would want to have secured an offer towards November or December to give themselves the best chance of completing in time.
Non-resident buyers
Even for the offshore investor this is a good time to buy with the reduction in Stamp Duty. The offshore lending market is still active with all lenders open for business. With the Pound still weak against most of the global currencies it increases the savings available.
Here you can see the movement of the Pound vs the US Dollar:
Here you can see the Pound vs the Rand:
*Source: XE.com
You can see by the above graph that the Pound has weakened against US Dollar since 2015 while remaining roughly on par with the Rand.
Rental market
When looking at the rental demand, this remains strong in the UK with yields being achieved up North still around 6-10% depending on the area and property type. In the South and London, in particular, this is depressed due to property values and averages around 2.5%-5%.
Here you can see the median rentals across the various areas of the UK:
Source: Office for National Statistics
The data also shows that the median rental income achieved also increases with the number of bedrooms:
Taking all the above into account has made the UK housing market look attractive. With lower acquisition costs, a strong rental market and low interest rates; now is certainly looking like a good time to buy whether you are looking for your next home or an investment property. This applies to both UK residents and foreign residents who will also benefit from a weaker Pound in most instances
If you require any mortgage assistance, please do not hesitate to get in touch with us at mortgages@sableinternational.com or call us on 0207 759 7519.
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