29 January 2021

All good things shouldn’t necessarily come to an end

By Vicki Harris
Chief Commercial Officer of Kensington Mortgages

Stamp duty has always been a controversial tax. First introduced as a ‘temporary’ four-year tax on transactions in 1694 to fund military interventions against Stuart advances on the throne - 326 years later - it’s still here. Critics highlight the role it plays in restricting housing market activity and the penalty it applies to properties that change hands more frequently than others.

Since July 2020, a stamp duty holiday has been in place and since its fruition, the housing industry has come back tenfold. It’s been the busiest period of activity we’ve seen in a long time. Many have used this opportunity to either step onto the property ladder, upsize, downsize, or change things up completely - opting for different scenery and away from the hustle and bustle of cities. According to the latest HMRC figures, property transactions were up by almost a third in December 2020 year-on-year.[1] Commuter hotspots could perhaps soon become a thing of the past.

However, with the tax break due to end 31st March 2021, the clock is ticking for buyers to complete their purchases. The policy’s success has caused many to question the reasoning for ending the holiday at a time so early on in the UK’s economic recovery. Considering house prices and transactions have experienced a boom in recent months, the simple but vital question on people’s minds is, why now?

The industry has been urging the government to extend the break, or even go one step further and remove it entirely. So here at Kensington we commissioned the Centre for Economics and Business Research (Cebr) to analyse the effect of a permanent extension. The results were eye-opening. Retaining the threshold at its current level of £500,000 would provide new tax revenues ranging between £2.3 and £4.1 billion - generated by higher transaction volumes, increased property prices, household consumption, and housing market activity. In the upper bound estimate, this would lead to a fiscal surplus for the UK treasury of £139 million a year.

Our research also estimated that there would be approximately 37,000 additional housing transactions each year and generate £266 million in revenues annually. Lower taxes bring a clear benefit to household consumption and property wealth. All of this would, in turn, help our economy recover quicker.

Whilst the government has so far rejected calls for an extension, there is likely to be increasing pressure to do so as the deadline draws nearer. Some housing transactions will likely fall through – and we expect the ramifications of national lockdown 3.0 to only make matters worse. The government needs to start considering serious alternatives to ending the stamp duty holiday so abruptly, which is especially important since thousands of completions are lined up between now and then.

Although we can only hope the government will extend the policy, nobody at this stage should go into the buying process based on this assumption. Be prepared and act accordingly. During these vital last few months, we hope the realities of the situation start to become clearer. Now is the time to be bold and keep the threshold at its current position, or at least consider amending it to a higher level than the previous £125,000. If you are interested in reading our full report on the findings, click here.

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Vicki Harris - Chief Commercial Officer of Kensington Mortgages

Vicki Harris has 20 years of experience working in challenger financial services brands, working across asset management, banking and specialist lending. She is Chief Commercial Officer of Kensington Mortgages, the UK’s leading non-bank specialist mortgage lender.


Follow us on LinkedIn, or on Twitter @KensingtonChat. If you have a news suggestion or any questions email blog@kensingtonmortgages.co.uk
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