Stamp Duty Land Tax (SDLT) is the tax that becomes payable when you buy residential property or a piece of land in England or Northern Ireland. It’s just one of those things that you have to factor into your cost of acquisition. There are different bands according to property value, and a recently introduced 3% surcharge for the purchase of second homes.
Rumours of a stamp duty reform were rife earlier in the year, but the March 2020 Budget merely announced a 2% surcharge for overseas buyers of UK property, applicable from April 2021. Then coronavirus took hold and the housing market along with many other sectors of the UK economy ground to a halt, prompting the Chancellor to announce a raft of measures in his Summer Statement aimed at helping the economy recover from the worst effects of Covid-19. The immediate introduction of a stamp duty holiday was one of the key measures announced.
What is the temporary stamp holiday?
The new measures that will remain in force until March 2021 constitute an increase in the SDLT nil rate band, as one industry expert explains: “Under the old regime, no tax is paid on the first £125K, 2% up to £250K and then 5% up to £500K. First-time buyers pay nothing up to £300K. A property worth £450K would cost a first-time buyer £7,500 and everyone else £12,500. Buyers of second properties face higher charges. The new announcement will see no tax paid up to £500K for properties that are the buyers main home.”
If you are buying property now, the maximum amount you could save would be £15K. This is certainly not an insignificant amount for any homebuyer. Given the fact that many new homes will require some redecoration, new furniture or building works, the extra cash should come in very handy.
Should you buy a new home now?
Tempting though it may be to take advantage of the tax saving on offer, the decision to move home, and whether to rent or buy, is much bigger than that. There are many factors that come into play, and everyone’s circumstances – both personal and financial – are different.
On a bigger scale, let’s not forget that the coronavirus crisis has created a volatile economic climate, plus there’s the sceptre of Brexit still hanging over us. So, here are some essential questions you should be asking to determine whether now is the right time for you to buy a new home.
- Can you really afford to buy?
Now is the time to crunch your numbers. How much do you spend now on rent/ mortgage and will buying a home make your financial situation better or worse? Crucially, are you on furlough and how safe is your job when the furlough scheme ends? Do you have enough savings, or will the stamp duty holiday help close the gap?
- Can you get a good mortgage deal?
Current mortgage interest rates are at an all-time low and an increase doesn’t appear to be on the horizon. This means there are now some cracking deals to be had, especially if you are able to plan longer term. And if finances are squeezed in ever-growing rental market, a move into your own home could make a lot of sense now.
- What about location?
Many people are reviewing their lifestyle choices in the face of coronavirus, while flexible working and home working are bound to feature much more heavily in the future. This may not make the commute a thing of the past but does open up the option of moving to more rural locations where the £500K value cap will go a lot further.
- Will the housing market rise or fall?
Predictions vary wildly over the impact of the Covid-19 crisis, the global economic environment and the UK’s place in it after the Brexit transition in December. While some predict a fall in prices, others have a more optimistic outlook. The fact is that very few homebuyers have the luxury to base their decision on uncertain market forecasts. Lifestyle considerations and affordability criteria will always be higher on the list.
Since the easing of lockdown and the introduction of temporary stamp duty relief, the property market has seen a sharp upturn in recent weeks. Traffic on property websites such as Rightmove has seen a significant increase, while estate agents, mortgage lenders, surveyors and conveyancers have all been unseasonally busy.
This activity may only be a short-term phenomenon, and largely the result of pent-up demand. However, it does point towards a general sense of urgency to get settled in before the next wave of unpleasant economic news, or another Covid-19 outbreak, hits. The March 2021 stamp duty holiday deadline, then, is another factor for homebuyers to speed up their decision making.