In July 2020, the UK Government announced a temporary stamp duty tax reduction for those buying residential properties between the 8th of July 2020 and the 31st of March 2021, in England and Northern Ireland.
The new rules mean that buyers only start to pay SDLT on the amount that they pay for the property above £500,000.
But what effect has stamp duty relief had on property purchases throughout the pandemic and can buyers benefit from a potential drop in property prices?
Did property transactions increase throughout summer?
It’s thought that the new SDLT rates, which apply to first time buyers and those who have owned property before, have encouraged quick transactions with buyers eager to complete before the end date in order to qualify for the new break which has allowed many the opportunity to save up to £15,000.
In fact, Halifax has revealed that they saw a sharp rise in the UK property market through August with a 1.6% increase in house prices against July.
Russell Galley, Managing Director, Halifax, commented that,
“A surge in market activity has driven up house prices through the post-lockdown summer period, fuelled by the release of pent-up demand, a strong desire amongst some buyers to move to bigger properties, and of course the temporary cut to stamp duty.”
However, despite a surge in property purchases in July, provisional data from HM Revenue and Customs (HMRC) shows that property sales in the UK were down 27% year-on-year.
What effect has a decline in property purchases had on price?
Although it’s too early to give a definitive answer to this question, it could be interpreted that a decline in demand and a reduction of income due to unemployment, has forced some sellers to reduce their asking price.
The ban on repossessions will come to an end as of October 31st, 2020 and this is also predicted to have a greater downward pressure on house prices in the medium-term.
A combination of the above and a level of uncertainty amongst buyers has led The Centre for Economics and Business Research (CEBR) to predict that house prices could fall by 14% in 2021.
Buying and selling property during coronavirus
While this is bad news for sellers, it does create an opportunity for buyers, especially those that already have cash put by for a deposit.
That being said, deposit requirements have increased with the majority of lenders now asking for 10 - 20% deposits. Given that the average property price now stands at £237,834, that could mean that some buyers need a deposit of £47,566.80.
However, with interest rates at an all time low, savers aren’t likely to earn substantial gains from their savings and therefore, accumulating a hefty deposit could take a little longer.
How much could I save if property prices fall in 2021?
If predictions by the CEBR are correct, a 14% reduction on property prices could allow some buyers to purchase both residential and buy-to-let properties at significantly cheaper asking prices.
But how does that affect the amount of deposit required now that some lenders have increased their deposit requirements?
Price before decrease | 10% deposit | Price after 14% decrease | 10% deposit | 15% deposit | 20% deposit |
£100,000 | £10,000 | £86,000 | £8,600 | £12,900 | £17,200 |
£150,000 | £15,000 | £129,000 | £12,900 | £19,350 | £25,800 |
£200,000 | £20,000 | £172,000 | £17,200 | £25,800 | £34,400 |
£250,000 | £25,000 | £215,000 | £21,500 | £32,250 | £43,000 |
£300,000 | £30,000 | £258,000 | £25,800 | £38,700 | £51,600 |
£350,000 | £35,000 | £301,000 | £30,100 | £45,150 | £60,200 |
£400,000 | £40,000 | £344,000 | £34,400 | £51,600 | 68,800 |
£450,000 | £45,000 | £387,000 | £38,700 | £58,050 | £77,400 |
£500,000 | £50,000 | £430,000 | £43,000 | £64,500 | £86,000 |
Should I buy a property during Coronavirus?
Whether or not you should buy a property during the current Covid-19 climate, is highly dependent on your own circumstances. A pandemic property purchase certainly has its risks, the first one being that unemployment is predicted to increase throughout the UK as the furlough scheme comes to an end, which inevitably could affect your ability to repay your loan.
However, a potential drop in property market values is certainly tempting. The Telegraph reports that a fifth of 1.9 million homeowners may have to resort to selling their homes, resulting in a wave of 380,000 properties coming to market within a relatively short time period and with reduced demand, it could present an opportunity to pick up a property at an affordable price.
As with any large financial purchase, buying a property is a huge decision and factors such as the resale value, the location and the type of property you plan to buy should be carefully considered.
Can I get a mortgage during the pandemic?
Many lenders are cautious about loaning larger amounts because they want to, A) avoid losing money and B) avoid their customers falling into negative equity.
Your affordability will be closely looked at to determine whether you’re a “safe” borrower, so be prepared for credit checks and questions about your income.
That being said, getting a mortgage in 2021 certainly isn’t impossible and with the right advice, you could make an advantageous purchase either for investment, commercial use or for a home.
Our brokers use their knowledge of the current market as well as their contacts with various lenders across the UK, to source the best deals for you.
They’ll compare the mortgages that you’re more likely to be accepted for and will always explain the pros and cons of each agreement to prevent you from spending money unnecessarily or facing unexpected financial hurdles down the line.
Free mortgage advice
Checking your eligibility ahead of making an application could save you wasted money in application fees and could also help you avoid a rejection on your credit report.
Call us on 02380 980304 to find out whether you’d be eligible for a mortgage and to talk about your next steps.
023 8098 0304