Is the Stamp Duty Holiday is good as it seems?

The housing market has been a bright spark in a dark period enshroud by Covid-19.  There are a few potential reasons for this, including people looking for a change of lifestyle and moving to properties with more private outdoor space, but one of the major factors has to be the holiday applied to stamp duty payments.

It's a little over a month since the chanceller announced an extension to the Stamp Duty Holiday, meaning that property buyers benefit from a tax free purchase, saving them thousands of pounds.  Whilst this has been great news, it has also seen demand for property rise and therefore house prices have also increased.

What does this mean?

Whilst there has been an increase in demand, with everything, this will lead to property being overpriced, and the worry is that this 'bubble' is going to end fairly soon.  Why?  When the payment holiday ends, and we start to live the realisation that the debts accrued from Covid-19 support payments have to be paid back, house prices will fall leaving new owners with an almost instant negative equity.  

Couple this with high mortgage payments due to low deposit requirements (just 5%) and I fear that many new home owners are going to get caught with high mortgage payments on a property that quickly loses value on what was paid for it.

How can people get around this?

My advice would be don't fall for a 5% mortgage scheme.  Wait until you can afford a bigger deposit, and if possible wait to see how the market plays out later in 2021.  We are looking at a potentially difficult time ahead, not just in the property market, but in the economy as a whole.  There is hope that people have been sensible with their cash whilst in lockdown, and have been saving - which could help to stimulate the economy when things return to some sort of normal, but it's difficult to predict right now.

Is it still worth buying a property now?

If the situation is right for you, then of course.   If you have a sensible deposit and some sort of stability, with a long term plan for your new home then there is no reason why you shouldn't move and take advantage of the tax free property purchase.  However, if you are pushing out the boat to make the purchase by using every last penny of your savings for a small deposit, then understand that you could soon be in the territory of making large mortgage payments on a property that is worth significantly less than the mortgage you took out.

In Summary

The stamp duty holiday has been a welcome tax break for many people, especially those looking to sell their home.  For buyers the boom in house prices, partly due to the demand created by the stamp duty holiday will have effects on the value of their property vs borrowings possibily as soon as late 2021.  What goes up, must come down and where investments are concerned, buying during the up phase is always going to carry elements of risk.

If you are considering selling your property, why not take a look at our listing platform?  It's completely free to list right now, so what have you got to lose?