95% Mortgage Scheme and the 2021 Budget05/03/2021
Property Market Predictions 202105/03/2021
If you’re unclear on property market jargon, Stamp Duty (otherwise known as SDLT) is basically land tax: if you’re purchasing a piece of land/residential property in England or Northern Ireland, you will most likely be required to pay it (this also applies to freehold and leasehold properties, with or without an upfront mortgage). Stamp duty does not apply to Scotland or Wales, as they charge LBTT (Land and Building’s Transaction Tax) and LTT (Land Transaction Tax) respectively.
SDLT is not a form of stamp duty, rather it serves to be a self-assessed transfer tax in accordance with land transactions: it’s derived from SDRT (Stamp Duty Reserve Tax) which was introduced during wartime and became so beneficial due to its ability to raise revenue for the government that it remained in place until SDLT was introduced in 2003.
In July 2020, the Chancellor of the Exchequer announced a temporary stamp duty holiday that placed the price of SDLT at 0% on all properties valued £500,000 or under in an attempt to combat the financial crisis created by the coronavirus pandemic, with the holiday set to end in March (though this has been extended as of March 2021 to now end in September of this year).
Stamp duty costs are dependent on the circumstances of the property and the buyer as an individual. Concerning ‘buy to let’ properties, a 3% tax sub-charge is required on those that cost under £125,000 and a maximum of 8% on anything valued between £250,000 and £925,000.
‘Buy to live’ properties, however, have different charges: £125,000 properties do not have to pay the sub-charge and this extends to a maximum of 5% on anything valued between the 250k and 925k landmark. This, of course, is provided that the buyer has already closed the sale on their previous property; in terms of first-time buyers, they are exempt from the stamp duty tax on any properties valued £300,000 or lower.
Following the 2021 Budget announcement, investors and buyers now only have to pay 3% on properties over £500,000.
Stamp duty is often paid within 14 days of acquiring a property by the solicitor to avoid the buyer facing any penalties or charged interest from HMRC: in most cases, the agency files and returns the stamp duty tax on the buyer’s behalf and adds the cost of such to their own fees. In some cases, however, an agency won’t offer to do the stamp duty tax and will leave that fiscal responsibility to the buyer.
Buyers also do not have to pay the sub-charge if the property they’re purchasing is replacing a previous, main residence that’s already been sold: if that prior property hasn’t sold by the time they have purchased the replacement, they can apply for a refund as long as it’s within 36 months of being sold. If it takes more than 36 months due to the delays caused by the coronavirus pandemic, buyers may apply for a claim from HMRC detailing why the sale took longer than expected.
How will a stamp duty extension impact the property market?
Stamp duty has its pros and cons, with some people finding it to be an obstacle in terms of completing transactions. However, the stamp duty holiday has proved mutually beneficial, providing buyers and investors alike with the opportunity to get their foot onto or move up the property ladder. For investors in particular, the holiday has provided the opportunity to establish or expand their portfolios whilst making significant savings on newly purchased properties and land.
When 2021 began, the future of the property market was uncertain. Now, with the extension of the stamp duty holiday, new avenues for investors have opened up. During this time, buyers’ eligibility will increase (as the reduction in stamp duty leaves room for a larger deposit), encouraging purchasing activity. This will prove to be beneficial for investors with an increase of house buyers providing a higher rate of financial returns.
Since the SDLT holiday was announced in 2020, there has been notable growth in property prices within the UK property market, due to a continued imbalance in supply and demand (which has only been furthered by the introduction of the 95% mortgage scheme in 2021), as well as a notable rush to purchase properties and produce significant savings whilst the scheme is still in effect: according to data provided by Rightmove, the traffic to their website exponentially increased by 22% when the tax break was announced, with an estimated annual growth rate of 8.5% in December of that year.
Some landlords may argue that there is a need to abolish SDLT in its entirety, 67% according to data collected by the FJP Investment. However, the benefits seemingly outweigh this concept, with the extension proving highly successful thus far, and data suggesting that the property market is set to become more fortuitous throughout the year.
The benefits of a stamp duty extension
According to Rightmove, an additional 300,000 sales in England could benefit from the extension, saving investors and buyers alike up to £1.75 billion in tax. It will also be beneficial to first-time buyers in more expensive parts of the countries (such as London) and allow property owners to save up to £15,000 on their stamp duty bill. According to David Postings, the chief executive of UK finance, the extension will be preventative in house sales collapsing and can only stand to be beneficial to everybody involved in the housing market system through its encouragement of buying activity.
Further benefits come in the form of the extension of the scheme alone. Stamp duty was originally speculated to be extended by three more months, finishing at the end of March: in Rishi Sunak’s recent speech during the 2021 Budget, however, it was revealed that it will now be extended until July, with mortgage providers beginning to accept claims for the 5% mortgage scheme after being officially backed by the government.
The reason for the extension is simple: most sales agreed to in January (according to investors) tend to be incomplete by April. The coronavirus has also caused major delays in the acquisition of properties, leaving thousands of buyers vulnerable to losing out on tax savings, mainly those who have purchased a property in the last 12 months. However, buyers need only pay SDLT once the purchase of a property has been completed, therefore any exchange made before July 8th 2021 that has not yet been finalised still allows the buyer to reap the benefits of the stamp duty cut.
Why should you invest in property now?
As aforementioned, those purchasing property costing under £500,000 don’t have to pay stamp duty under the government’s new regulations: this, in turn, creates an incentive not only for prospective buyers looking to purchase a property but also for the investors who will be able to make notable savings when expanding or establishing their property portfolio.
According to statistics reported by FJP Investment, 24% of investors (900, UK-based investors recorded in an independent survey) were already aiming to buy one or more properties in wake of the stamp duty extension set for March 2021, 43% of which fall into the Millennial/Gen Z demographic: in light of the 2021 Budget that was delivered on March 3rd, these investors are able to take advantage of having a further 6 months to purchase properties/invest in land and expand their portfolio.
The stamp duty extension certainly came as a relief to most, as FJP Investment also reported that their research shows an obvious concern that most investors share, which is how the coronavirus pandemic will affect their finances in the long-term. However, it could be argued that confidence has not only been boosted as a result of the announcement of the stamp duty extension but by the current rate at which coronavirus vaccines have been provided to the public, with almost 21 million British people receiving their first vaccination as of February 2021.
The extension not only supplies investors with extra time but also an increase in savings, allowing property owners to invest any excess capital back into their sites and gain an increased ROI.
Other environmental incentives
In 2020, Rishi Sunak announced that new measures will be set in place in order to aid investors in making their properties more eco-friendly and efficient, benefitting both the property owner (who can make back the money lost as a result of the energy-saving allowance being cut) and the tenant (who is able to lead a more environmentally conscious lifestyle).
The Green Homes Grant, which was brought to fruition later that year in September, allows property owners to apply for vouchers that have the possibility to cover at least two-thirds of the cost that it will take to improve properties and make them more eco-friendly, such as roof insulation, biomass boilers, double glazing or energy-efficient doors. These vouchers have a maximum value of £5000 (and a possibility of more for low-income households), resulting in up to £300 saved annually on energy bills.
The appeal for property buyers
The stamp duty extension provides property owners with a window of opportunity to invest some of the money that they’ve saved back into producing environmentally friendly properties: in Western society, concern for the environment has been an important issue and the production of eco-friendly properties will appeal to a wider range of people (especially those who live in urban regions). According to a survey reported on by Marmox, 60% of prospective buyers claimed they were more likely to purchase a property from a company renowned for sustainability, therefore it may be beneficial to have a reputation of being eco-friendly as there’s a better chance that it will perform well on the property market.
The pandemic has also greatly affected the mental health of a lot of people in Britain, forcing them to re-evaluate their surroundings. Despite technology providing an alternative to in-person viewings through the use of virtual tours and online transactions, Lucian Cook (head of residential research at Savills) feels that this physical confinement as a consequence of the pandemic has led to many of the recent property sales, motivated by a need for space: according to Cook, “the market is currently being driven by those with the security in their household finances to be able to act on the lifestyle changes and desire for more space that the experience of the lockdown has brought about”.
Where Best Property Investments comes in
The SDLT extension provides an excellent opportunity for investors to expand their portfolio of properties. Here at Best Property Investments, we offer a variety of services to help you get started or move forward, including portfolio acquisition, and property sourcing.
Our property sourcing service channels the knowledge of both property professionals and experienced investors in order to source a range of properties with great potential to deliver a significant ROI for our investors. Alongside this, our portfolio acquisition service will ensure the smooth completion of the acquisition process from start to finish, securing listings best suited to your requirements as an investor. Also benefiting from the stamp duty holiday is our portfolio building service, which aids investors in establishing/curating a successful collection of properties.
With the property market set to prosper in 2021, it makes sense to invest now and take advantage of the schemes that the government has put in place to aid you in making more calculated investments.