is it time to reform stamp duty?

House prices reached a record high of £254,606 in March, a 1.1 per cent month-on-month increase, according to Halifax. The stamp duty holiday, which was extended in the Budget earlier in the month, along with other government support measures, are thought to account for the stellar performance of property prices. The average property now costs £15,000 more than it did when the UK first went into national lockdown in March last year.

Despite various lockdowns since then, it is remarkable that the property market has not only shown such resilience but actually thrived. Buyers have been keen to take advantage of the stamp duty holiday, whereby they can save up to £15,000 on their transaction – a not-insubstantial sum. Government support and stimulus has also been generous – via the furlough scheme, various financial assistance for businesses, and now the mortgage guarantee scheme for 95 per cent loans which fell away during the height of the pandemic.

not sustainable in the long term

While the impressive performance of the housing market is good news for the economy as a whole, creating a ripple effect which goes far beyond estate agents, conveyancers, lenders and mortgage brokers, it could be better yet if stock levels improved. The uptick in house prices is down to a real lack of stock, which in turn increases competition and pushes up property prices. Part of the reason for the need for 95 per cent loan-to-value mortgages is that first-time buyers in particular can’t keep up with soaring property prices – they can’t save a big-enough deposit fast enough. If property prices continue to rise, while it would have the effect of making existing homeowners feel wealthier, it does nothing to help social mobility and people to get on the ladder in the first place. In the long term, it is not sustainable.

A healthy housing market should facilitate moves up and down the ladder and across the country for employment opportunities or lifestyle reasons. As well as building more homes, particularly affordable ones, ensuring more stock comes to market is a crucial part of that. For this, the government could consider reviewing stamp duty again but at the higher level, or possibly removing downsizers’ stamp duty altogether. This would encourage people to move, improve supply and enable buyers to find properties, as well as putting a lid on price rises. Those big family homes which have become too much for their elderly occupants could be freed up for those growing families moving up the ladder, enabling and encouraging downsizers to move to more suitable accommodation for their stage of life.

There are many reasons for optimism – money is cheap, with interest rates unlikely to rise anytime soon. Lenders have plenty of cash to lend and want to lend it, with some incredible deals available. Lockdown continues to ease with pubs and restaurants reopening, and the ongoing rollout of the vaccination programme. Introducing a stamp duty holiday and then extending it has had such a positive impact on the market and buyer confidence. A few changes to the other end of the spectrum could boost the property market further still, helping the UK with its much-needed economic recovery.

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