In a bid to revitalise the pandemic-stricken housing market, Chancellor Rishi Sunak announced the suspension of stamp duty on the first £500,000 of all property sales on the 8th of July 2020, effective immediately until the 31st of March 2021. The change affects around 90% of buyers and London investors are chomping at the bit for substantial tax discounts in the capital. Overseas investors are not only incentivised by these cuts but also the looming stamp duty surcharge next April, the favourable currency fluctuations and London’s resilience in crisis. Investors from Hong Kong in particular will see this as a further incentive to buy, given that the BNO passport and exchange rate currently sits in their favour.
COVID-19 and the UK’s lockdown put a hold on property sales across the country, with the number of properties coming to market down by 90% in May compared to 2019 (Rightmove), and the number of transactions down by 50%. With the market reopening in May, activity started to increase but is expected to plateau as demand waivers.
With the chancellor’s announcement, traffic to Rightmove immediately increased by 22%. The suspension raises the nil-rate stamp duty threshold from £125,000 to £500,000, saving buyers up to £15,000.
Above £500,000, buyers will pay 5% between £500k and £925k, 10% between £925k and £1.5m, and 12% above that.
Who will benefit?
First-time buyers will not have to pay the 5% stamp duty on purchases between £300k and £500k, encouraging a number of buyers to enter the market and generate a ripple effect for the rest of the housing market. Home-movers will free up necessary housing stock for first-time buyers and movement to areas with stronger employment markets will also boost the economic recovery. Market researchers believe that Sunak’s temporary changes will revive the housing market and consumer confidence, triggering a knock-on effect for the economy as a whole.
The London housing market will see considerably favourable effects as new stock is snatched up this year and affordability for first-time buyers, home owners and investors will improve as demand is boosted by the stamp duty suspension.
What about investors?
Although investors and second home buyers will still have to pay 3% of the property value, they are still saving on stamp duty – in London, one in five landlords pay over £500,000 for an investment, meaning their average stamp duty bill will decrease by £7,240. Aneisha Beveridge, head of research at Hamptons International, has said that the savings “might be enough to lure those investors teetering on the edge of whether to invest, particularly in London and the south”.
Stamp Duty Examples from Savills UK
Foreign investors are already snapping up UK property ahead of the stamp duty surcharge in April 2021, with property firms seeing a rise in enquiries from overseas. Investors from Hong Kong are seeing the chancellor’s announcement as a golden opportunity to invest in a “safe haven” for property investment. Nearly three million BNO passport holders in Hong Kong have been offered the right to live and work in the UK, and currently 1HKD can buy 0.10GBP in comparison to 0.096GBP at the end of 2019. The combination of incentives is driving demand and buyers will be looking to take advantage of the rare opportunity.
The SDLT holiday is effective immediately until the 31st of March, 2021. This means that property transactions must be completed before March next year to reap the benefits, even if exchanges are made prior to the deadline. Buyers are therefore showing demand primarily for newly built flats, those completed before the deadline in March, or second-hand properties.
As we trudge along with dwindling hope in the midst of a global pandemic, the property world is ready to flourish with an onrush of demand as a result of the decision to suspend stamp duty by Chancellor Rishi Sunak. The capital in particular is expected to benefit greatly from the temporary change and the UK economy should see a knock-on effect from increased consumer confidence. Overseas buyers are using this opportunity to invest in safe haven assets and strike while the iron is hot.