Treasury officials are poised to advise the Chancellor to extend the stamp duty holiday to avoid the collapse of thousands of housing transactions in the new year, This is Money understands.
Mortgages are being approved today on the basis that no stamp duty will be payable but experts say transactions are taking months to complete and tens of thousands could miss the 31 March deadline.
If purchases are delayed beyond this date and miss the tax holiday, borrowers face needing to find up to £15,000 more to fund their purchase.
It would mean lenders were within their rights to withdraw mortgage offers, causing potentially tens of thousands of transactions to collapse.
Treasury officials are poised to advise Chancellor Rishi Sunak to extend stamp duty holiday
Experts warned civil servants earlier this month that there simply is not enough man power in the market to get these transactions through before the stamp duty deadline passes.
They say painful mortgage processing delays are being exacerbated by a national shortage of surveyors available to carry out mortgage valuations and too few solicitors available to complete legal work.
Sources close to those conversations told This is Money that Treasury officials are now of the view that extending the property tax reprieve has become ‘critical’ to cope with the massive swell in the number of homes set to change hands over the coming months.
Bank of England figures published this morning showed a surge in the number of mortgages approved in October, up 5.9 per cent on the previous month to 97,532 and a massive 51 per cent ahead of the same period last year.
Figures published by HMRC at the end of last week, meanwhile, showed housing transactions hit 105,630 last month, up 9.8 per cent compared to September 2020 and 8.1 per cent compared to October 2019.
As a rule of thumb, transaction numbers typically follow mortgage approvals by between three and five months; mortgage industry insiders say October’s numbers are just estimates, with the actual number of transactions expected to be closer to 120,000.
Experts warned civil servants earlier this month that there simply is not enough man power in the market to get these transactions through before the stamp duty deadline
Property search platform Zoopla is predicting transactions in December to hit 140,000, the highest figure for a December since 2006.
A Treasury spokesman declined to confirm whether Chancellor Rishi Sunak was minded to act on the advice of officials, but said ‘Government keeps stamp duty under review and is closely monitoring the market’.
In a statement, it said: ‘The temporary stamp duty cut is helping to protect hundreds of thousands of jobs which rely on the property market by stimulating economic activity.
‘Its time-limited nature is what has encouraged people to take advantage of the scheme.’
|Date||Mortgage approvals||Housing transactions|
|Source: Bank of England, HMRC|
Following the first national lockdown between March and July, the Government temporarily increased the nil rate band of residential stamp duty in England and Northern Ireland from £125,000 to £500,000 in a bid to boost the ailing housing market.
The ‘holiday’ applies from 8 July 2020 until 31 March 2021 with government estimates suggesting nearly nine out of 10 people getting on or moving up the property ladder will pay no stamp duty at all during the holiday.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: ‘The stamp duty holiday has turbocharged the housing market, sending house purchase mortgage approvals in October to their highest level since September 2007.
‘They likely will remain at a very high level during the winter, given that Google Trends data show that visits to the three main property websites—Rightmove, Zoopla and OnTheMarket—were up 30 per cent year-over-year in the week ending November 22, unchanged from recent months.
‘The housing market, however, remains set to weaken sharply after the threshold for stamp duty is returned from £500,000 to £125,000 at the end of March.’
Andrew Montlake, of mortgage broker Coreco, said the number of approvals in October ‘reflects the mad stampede to buy before the stamp duty holiday ends’.
He added: ‘This data is bittersweet as we all know that 2021 could see the real economic impact of the pandemic start to bite.
‘It’s hard to celebrate such robust mortgage approvals data when we all know what’s round the corner. Unsurprisingly, lenders are circling the wagons due to concerns over rising unemployment levels and their impact on house price growth.
‘Getting a mortgage at higher loan-to-values remains an almost insurmountable challenge. What’s vital now is that lenders don’t become overly cautious.’
Mortgage rates rising
Caution is already showing. Mortgage lenders have been hiking rates amid the scramble for deals, prompting some to question whether they are now simply taking advantage of borrowers’ rising panic about completing before the stamp duty holiday breaks.
Anthony Codling of property analysis firm Twindig said: ‘The average rate for a new 95 per cent 2 year-fixed rate mortgage was 4.09 per cent in October 2020, an increase of 35 per cent since the start of 2020, according to the Bank of England.
‘Are mortgage lenders capitalising on increasing demand or pricing in greater downside risks to house prices?’
Codling: ‘Are mortgage lenders capitalising on increasing demand or pricing in greater downside risks to house prices?’
House prices have confounded forecasters’ expectations this year by shrugging off the economic hit from Covid-19 and rising by about 6 per cent over the year, according to analysis from Capital Economics.
Andrew Wishart, UK economist at the research house said: ‘The usual channels through which a recession hits the housing market, of rising unemployment and mortgage payment difficulties, have been mitigated by the furlough scheme, mortgage payment holidays, and a moratorium on repossessions.
‘Meanwhile, the market has been boosted by pent up demand from the first lockdown, a revaluation of space needs due to working from home, and an extra kick from the stamp duty holiday.
‘But the policy support that has protected and boosted the market this year is due to be withdrawn in 2021, just when we expect the unemployment rate to peak at 7 per cent.
‘The housing market has never escaped unscathed from a drop in employment of the scale we forecast.
‘In fact, in isolation the historical relationship between employment and house prices suggests a 25 per cent house price crash is in the offing. Our view, however, is that an annual fall closer to 5 per cent in Q4 2021 is more likely.’
Tombs added: ‘The outlook remains exceptionally unclear, given that government policies might change; the stamp duty holiday could be extended, or the government might follow through on plans to introduce a new mortgage guarantee scheme.’
Best mortgage rates and how to find them with This is Money’s help
This is Money has partnered with L&C Mortgages, a firm of independent mortgage brokers who specialise in finding the best mortgage rates and the right deal for you.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.