Reflecting on the influence of the stamp duty holiday on UK property

While most sectors within the UK economy lick their wounds in the wake of the financial devastation of the pandemic, the property market has emerged from this period in a bullish mood. Indeed, one of the more intriguing upshots of the pandemic has been the remarkable performance of the real estate industry.


Related topics:  Property
Nikes Khagram - KSEYE
7th October 2021
Nikes Khagram 033

In the initial months following the onset of the pandemic, and its associated social and business restrictions, the market came to a rare standstill. Agents were unable to show properties to prospective buyers in person, processes of documentation became complicated by varying abilities to sign electronically, and traditional lenders responded conservatively to the upheaval by withdrawing a vast number of mortgage products from the market. To put it simply, between March and June 2020, it was essentially illegal to complete a property purchase in the traditional way.

This all changed in dramatic fashion when, in quick succession, social restrictions began to ease in early summer, facilitating greater volumes of activity, and the Government announced a holiday for the Stamp Duty Land Tax. In offering a maximum saving of £15,000 on property purchases, the Chancellor unleashed a flood of market activity and booming house prices that was, in many ways, unprecedented even for the ever-buoyant UK property sector.

Now, as the holiday comes to a conclusion, we have reached an opportune moment to assess the influence it had on the market, both in the past 15 months and its likely consequences going forward.

How could the market shape up?

The sector stands at something of a crossroads. Many anticipate we are to see a period of cooling, as much of the potential demand for property investment in Q4 will have been paid forward into previous quarters to benefit from the holiday.

Indeed, annual house price growth has eased back to 10% in September, according to the latest Nationwide House Price Index. This was down from a rate of 11% in August.

It must be stressed, however, that we should not expect to see a price correction on the level of a ‘crash’. In fact, with the dependable incremental growth in UK property observed over a number of decades, it is far more sensible to anticipate prices levelling out back into a sustainable mode of growth, with the stamp duty likely to be seen as having an acceleratory, rather than bubbling, effect on the market.

According to Halifax’s house price index, in the last 20 years, UK property values have more than trebled. Given the often tumultuous economic and political landscape of Britain over this period, this signals the enduring strength of UK property.

There are numerous encouraging signs that this will continue. Recent analysis forecasts house prices to continue to grow at an attractive rate, with 3.5% rises expected in each year between 2022 and 2024. While stakeholders in the sector must, of course, be guarded against the possibility of unexpected or unintended consequences leading to price falls, the market as a whole appears in even better health than before the pandemic.

Rise to prominence for alternative finance

With a flurry of activity and a hard deadline on accessing a substantial cost-saving, there was another significant upshot of the stamp duty: the greater attention given to alternative finance.

The confluence of financial and time pressure left alternative financiers well-placed to facilitate the market’s liquidity. While traditional high-street mortgage providers struggled to balance the need for fiscal caution with the property market’s boom in activity, alternative finance was positioned to meet the varying needs of a number of buyers.

For instance, the tick-box methodology of traditional lenders was simply not suited to many property investors, who were looking to leverage existing assets to facilitate another purchase. Then came the delay in the delivery loans amidst such high demand. In H1 of 2021, it took 16 days longer to complete a property sale than in H2 of 2020, owing largely to delays in securing and receiving a mortgage facility.

Within the alternative finance sector, there was an evident rush of buyers and brokers looking to secure bridging finance to smooth over breaks in property chains or step in to provide loans when other lenders could not complete on time. During the stamp duty holiday, many bridging applicants were looking for rapid assistance in completing in time to benefit from the tax break.

From this perspective, one of the clear lessons for the sector from the stamp duty holiday has been the importance of fast and flexible execution. Strong funding lines and established relationships among brokers have allowed alternative finance to grow significantly in this period, stepping in to meet market demand where traditional lenders were ill-prepared to do so.

The outlook is positive, too. In a recent poll of 78 property finance brokers, 63% said they expect the specialist lending market to grow significantly over the next year, and a third expect it to grow slightly.

The stamp duty holiday put the market under pressure – the uptick in demand, price growth and deadlines to the initiative created a somewhat frenetic feel to transactions. Bridging finance emerged from this situation with its credibility enhanced; the speed and flexibility of short-term loans came to the fore, and this could provide a springboard for bridging lenders to achieve yet more success in the coming 12 months and beyond.

More like this
Latest from Financial Reporter
Latest from Protection Reporter
to our newsletter

Join a community of over 20,000 landlords and property specialists and keep up-to-date with industry news and upcoming events via our newsletter.