Will the stamp duty holiday continue after the March 31, 2021 deadline?

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Treasury officials are ready to advise the chancellor to extend the stamp duty holiday to avoid the collapse of thousands of real estate transactions in the new year, This is Money understands.

The mortgages are approved today on the basis that no stamp duty will be payable, but experts say transactions take months and tens of thousands of people could miss the March 31 deadline.

If purchases are delayed beyond that date and miss the tax holiday, borrowers will need to find up to £ 15,000 more to finance their purchase.

That would mean lenders would have the right to withdraw mortgage offers, which could lead to tens of thousands of deals collapsing.

Treasury officials ready to advise Chancellor Rishi Sunak to extend stamp duty holidays

Experts warned officials earlier this month that there was simply not enough labor in the market to bring these deals to fruition before the stamp duty deadline.

They say painful delays in processing mortgages are exacerbated by a nationwide shortage of surveyors available to perform mortgage appraisals and too few available lawyers to complete legal work.

Sources familiar with the conversations told This is Money that Treasury officials now believe the extension of the property tax stay has become “essential” to deal with the massive rise in the number of homes that are expected to change hands over the next few months.

Bank of England figures released this morning showed an increase in the number of mortgages approved in October, up 5.9% from the previous month to 97,532 and 51% ahead of the same period. last year.

Figures released by HMRC at the end of last week, meanwhile, showed real estate transactions reached 105,630 last month, up 9.8% from September 2020 and 8.1% from September 2020. to October 2019.

Typically, transaction numbers typically follow mortgage approvals for three to five months; According to mortgage industry insiders, October’s numbers are only estimates, with the actual number of transactions expected to be closer to 120,000.

Experts warned officials earlier this month that there was simply not enough labor in the market to bring these deals to fruition before the stamp duty deadline.

Experts warned officials earlier this month that there was simply not enough labor in the market to bring these deals to fruition before the stamp duty deadline.

Property search platform Zoopla predicts transactions in December will hit 140,000, the highest figure in December since 2006.

A Treasury spokesman declined to confirm whether Chancellor Rishi Sunak was willing to act on the advice of officials, but said “the government is keeping stamp duty under review and monitoring the market closely.”

In a statement, he said: “The temporary reduction in stamp duties is helping to protect the hundreds of thousands of jobs that depend on the real estate market by stimulating economic activity.

“Its limited time nature is what encouraged people to take advantage of the program.

Mortgage approvals and completed transactions (not seasonally adjusted)
Date Mortgage approvals Housing transactions
October 20 155 188 121 740
20 sept. 143 645 98 390
20 August 124 567 84 720
Jul 20 129 191 80 440
June 20 95 200 67 310
May 20 42 802 46 100
20 avril 54 550 37 320
20 mars 123 429 86 910
February 20 131 785 82 830
Jan 20 113 362 83 830
Source: Bank of England, HMRC

Following the first nationwide foreclosure between March and July, the government temporarily increased the zero rate bracket for residential stamp duty in England and Northern Ireland from £ 125,000 to £ 500,000 in an attempt to stimulate the market for housing in difficulty.

The “holidays” apply from July 8, 2020 to March 31, 2021, with government estimates suggesting that nearly nine in 10 people climbing or climbing the property ladder will not pay any stamp duty during the holidays.

Samuel Tombs, UK chief economist at Pantheon Macroeconomics, said: “The stamp duty holidays have boosted the housing market, propelling home purchase mortgage approvals in October to their highest level. high level since September 2007.

“They will likely stay at a very high level through the winter, given that Google Trends data shows that visits to the top three property websites – Rightmove, Zoopla and OnTheMarket – have increased 30% year over year. the other during the week ending in November. 22, unchanged from the last few months.

“The housing market, however, remains poised to weaken sharply following the return of the stamp duty threshold from £ 500,000 to £ 125,000 at the end of March. “

Andrew Montlake, of mortgage broker Coreco, said the number of approvals in October “reflects the mad rush to buy before the stamp duty holiday ends.”

He added: “This data is bittersweet because we all know that 2021 could see the real economic impact of the pandemic start to bite.

“It’s hard to celebrate such solid data on mortgage approvals when we all know what’s coming. Unsurprisingly, lenders are circling the wagons amid concerns about rising unemployment and their impact on housing price growth.

“Getting a mortgage at a higher loan-to-value ratio remains an almost insurmountable challenge. What is essential now is that lenders do not become overly cautious.

Rising mortgage rates

Caution is already showing. Mortgage lenders raised rates amid the rush for deals, leading some to question whether they were just taking advantage of borrowers’ growing panic about pre-holiday completion.

Anthony Codling of real estate analysis firm Twindig said: “The average 2-year 95% new fixed rate mortgage rate was 4.09% in October 2020, an increase of 35% since early 2020, according to the Bank of England.

“Are mortgage lenders capitalizing on rising demand or do they assess greater downside risks to house prices?

Codling:

Codling: “Are mortgage lenders capitalizing on growing demand or assessing the risks of falling house prices?”

House prices have muddied forecasters’ expectations this year by ignoring the economic blow from Covid-19 and increasing by around 6% year-on-year, according to Capital Economics analysis.

Andrew Wishart, UK economist at the Research House, said: “The usual channels through which a recession hits the housing market, rising unemployment and mortgage payment difficulties, have been alleviated by the holiday program, mortgage payments and a moratorium on foreclosures.

“Meanwhile, the market has been boosted by pent-up demand since the first foreclosure, a reassessment of space requirements due to working from home and an extra kick for stamp duty holidays.

“But the political support that has protected and boosted the market this year is expected to be withdrawn in 2021, just when we expect the unemployment rate to hit 7%.

“The housing market has never escaped unscathed a drop in employment of the magnitude we anticipate.

“In fact, in isolation, the historical relationship between employment and house prices suggests that a 25 percent drop in house prices is imminent. However, we believe that an annual decline closer to 5% in the fourth quarter of 2021 is more likely.

Tombs added: “The outlook remains extremely blurry as government policies may change; the stamp duty holiday could be extended, or the government could follow through on its plan to introduce a new mortgage guarantee system ”.

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