How will the end of the Stamp Duty holiday impact home buyers?

On Friday the Government’s lowering of the Stamp Duty threshold will end, resulting in homeowners having to pay the full Stamp Duty tax when purchasing a property. Here we look at how this will affect the cost of buying a home and the impact it will have on home movers and first-time buyers.

To help keep the property market moving, in July 2020 the Government announced a temporary cut on the Stamp Duty threshold, which meant that home buyers did not have to pay a Stamp Duty tax on properties valued up to £500,000, while a reduced Stamp Duty was payable on properties above this price.

The Stamp Duty holiday resulted in many homeowners savings thousands of pounds when buying a new home. However, house prices have increased to record highs during the past 12months which may have diminished any savings homeowners have made with the Stamp Duty reduction.

The ending of the Stamp Duty holiday means that property buyers will now have to pay the full tax when purchasing a new home. For those moving home this means that they will not have to pay any Stamp Duty on properties valued at £125,000 or less, on properties priced £125,001 to £250,000 a 2% tax will be added, a 3% Stamp Duty tax is added on properties priced between £250,001 and £925,000, those priced between £925,001 and £1,500,000 are charged 10% and properties over £1,500,000 are charged 12%. The Stamp Duty rate applies only to the part of the property price falling within that band, for example a property valued at £600,000 will not be charged Stamp Duty on the first £125,000, a 2% rate will be charged on the value between £125,001 and £250,000, 5% will then be charged on the value between £250,001 and £600,000.

First-time buyers, however, are exempt from paying Stamp Duty on properties valued up to £500,000. Meanwhile, a higher rate of Stamp Duty is payable on those purchasing second home and buy-to-let (BTL) properties.

Mortgage rates have been falling over the past few months, with lenders now offering record low rates on remortgage and moving home deals. Although many factors can impact the mortgage rates lenders set, if they are concerned that the ending of the Stamp Duty will lead to a slowdown in the housing market this could result in them keeping rates low to attract new borrowers onto their books and to retain existing borrowers. Already there are signs that the number of house purchases are starting to fall. The Bank of England has released data showing that house purchases in July 2021 fell to their lowest point since July 2020.

As well as this, the ending of the Stamp Duty could see more first-time buyers entering the market, who often buy a property with a low deposit of 10%. Lenders looking to boost the number of borrowers on their books may want to attract first-time buyers, which could result in them cutting rates on their deals requiring a 10% deposit – 90% loan-to-value (LTV).