Concert Associate Rishi Rai gives us his view on the current issue hitting the headlines…
“Stamp Duty Relief Extension … Yay or Nay?
The recent parliamentary debate was not hailed as a success for its outcome or conclusiveness. It was however the one parliamentary debate I have tuned into (and stayed awake for) and contained many useful views. The debate outcome: we are yet to see what the treasury will or will not do with regards to the stamp duty relief and other strategies. No surprise there – it feels like a domestic housing version of Brexit all over again, deal or no deal….
Generally, many commented that there was cross party MP support and support from Tory MPs for extending the relief for six months in the Stamp Duty Land Tax (SDLT) debate. You do not need to search long online to find that every industry professional body involved with housing and property, (including conveyancers, solicitors, valuers, estate agents, and many developers), is in an agreement there should be an extension to the SDLT relief of six months or at least a tapering off. There is a huge economic benefit for the UK from doing so. The relief has been a benefit to the economy UK wide and has clearly stimulated house market activity to levels not expected – perhaps a little too much for the liking of some. House price averages have soared. This has all been great but having a hard stop date for completion of 31st March and SDLT relief has put the whole market sector under pressure. The pressures on solicitors, estate agents, purchasers, valuers, and other professionals has already been widely commented on, as well as the backlog of exchanges and completions to processes that exist. Things would be much smoother if the hard stop relief date was removed or phased out.
Is it still the 90’s?
There is a strong growing consensus that the SDLT needs a complete overhaul or perhaps binned in its current form for good, as the current levy thresholds and SDLT %s are out of touch with house prices today. It seems very imbalanced, most would agree. Probably too scary a thought for the treasury right now to take such bold steps.
Though it is much like council tax bands being based on a property value aligned to the early 90’s – it can be confusing for some of us millennials to understand why taxation strategies cannot be updated to suit changes and more modern times. Given it has been a few decades. A bit like the classic car criteria and year a classic car is classed as such…. a classic car for some of us is a Ford Sierra Cosworth…. I will digress no further.
Given that the SDLT relief incentive achieved exactly what the treasury sought, which was to stimulate the housing, it would be questionable during these uncertain economic times, why the treasury would not maintain the incentive and market traction that it has brought. At least until we have navigated a bit further out of lockdown and the pandemic? Many professionals and industry experts believe at the end of the relief period on 31st March there will be a cliff edge drop in housing sales and activity. Also, the cooling of the market will help balance out extreme house price inflation in the past six months.
Too much uncertainty on top of uncertainty…
There is so much in the news that it feels like I am eating a layered uncertainty cake every day and feeling bloated with confusion on the outlook. Perhaps I am not alone in this. There have been reports of house prices dropping since December 2020 due to the hard stop date of 31st March 2021. Some cooling off may be needed and that could be the government’s plan all along, prior to announcing a relief extension in the March budget announcement. If that is a ‘hidden strategy’ of the treasury, hats off sirs it may be a smart one that when played out, alleviating today’s concerns and maintaining market activity in the months ahead. A little cooling of house prices would not hurt, though the uncertainty and headaches for purchasers, professionals, and developers, those reliant on the housing industry, will no doubt rather not have the current uncertainty of what is going to happen come budget announcement in March 2021.
There have been reports also of overall construction activity declining. We do not want to see construction dropping, we need a boost most would agree. This has to some extent been offset by reports of some resilience the past year in housing completions and announcements by developers of a healthy order book, land acquisitions and the year ahead looking positive. It would be fair to say some developers have fared better than others. Wouldn’t it be great if the treasury were fully behind supporting UK developers, designers and consultants who are passionately looking for ways to increase housing stock? As well as supporting many to make a first purchase or move home for whatever reason they may need to, upsize, downsize? We need supply, the UK needs homes, we need people to have confidence in being able to purchase and incentives to accelerate that process.
There is some food for thought there on the various housing market needs from demographics to wealth gaps. The needs of house purchasers are very subjective to wealth or existing assets, having no existing assets, higher and lower salaries, age, and changes in lifestyle, as well as changes due to the pandemic such as working from home more often.
These are the things the treasury needs to probe further. No one policy change will fit or work for all. However, the government does have the ability to provide at least targeted help to many who need it – first time buyers, key workers, those wishing to downsize and many others in the UK.
Mortgages and unemployment
Mortgages and unemployment are other key factors in what will happen in the housing market. Unemployment levels rising is still a real risk and we will not be truly clear on this until furlough ends in April, but what we can be sure on is that it will need to be mitigated and managed. It is right that government approach is cautious with incentives and that the most in need are supported, which is a difficult balance to achieve that encompasses a wide variety of taxes including VAT. Yet everyone knows the more spent, more transactions and purchases there are, the greater the market activity and speed of economic recovery. It makes sense therefore that mortgages and accessibility to mortgages will be another key factor in the coming months and year ahead. If everyone is working in the same direction to stimulate or increase activity, support jobs, support housing, rebuilding sectors hardest hit by the pandemic, the more likely it will be that lenders will be confident and give mortgages to those who need it most.
In the uncertain world of mortgages and growing unemployment levels, the SDLT relief has given the short-term boost to the economy that was intended. It remains to be whether the government see this as a benefit and continue with this benefit for much longer – support economic growth and housing. The key consideration is loss of tax revenue and a growing national debt due to the pandemic. On this more serious point, the Chancellor has some tough decisions to make for the next annual budget.
Government supporting its own strategy
There is a good case to ask why hasn’t the Government introduced reduced SDLT for the Help to Buy (HTB) schemes or first-time buyers in general? Is £300k relief for first time buyers still adequate or appropriate given we live in the age of the housing crisis? Many might say the HTB offers incentive enough as does the £300k threshold for First Time Buyers (FTBs). I would argue it may not go far enough, especially both apartments and house prices have risen a great deal over the past 10 years. As they did prior to the 2008 financial crash – we forget some felt the financial effects of that recession for many years after.
The Government has stated it’s desire (and promise) to offer more affordable homes for the UK. As to how that will be achieved is not so clear yet. But one thing is obvious to many in all the SDLT debate so far which is this – those that cannot complete by 31st March will not get SDLT relief. There are many professional views on the cliff drop and number of transactions that may fail. How can that be good for the economic recovery, developers, the property industry professionals, purchasers, or interdependent supply chains?
There is huge support across the board asking the Government to let sales agreed or houses that have exchanged contract benefit from the current SDLT relief up to £500k. That is where this author feels the right the balance of the debate lies… if the Government did that instead of extending the relief for six months, arguably it is as close to a win-win situation as most would hope for. The Government could triumph that it is short term SDLT policy did what it should have for the economy and probably receive less criticism. Those who wish to see current sales finalised to completion and purchasers benefit from the relief will also perhaps celebrate a little and say fair is fair – a balance was struck between what we wanted and what we needed. The rest of the commentators may still grumble but that’s life.
Summary
We do not know for certain yet what the treasury will announce come March 2021 in the budget. It is only days away. The media reports on 24th February are headlining an extension of SDLT relief to June 2020. This will be hugely welcome but still does not assist those who have exchanged contracts on new build purchases but cannot complete by June. It also does not address the structural changes required to the SDLT tiers, property bandings and how SDLT is implemented.
What we do know is, given the economic position we are in, a sudden cut of the SDLT relief with no other incentive or tapering off is likely to have a negative impact, rather than a positive one. In either case, the market and all involved with it will adjust and start to plan. At least with greater confidence once some certainty is established for the housing sector SDLT approach. For those developers offering to pay SDLT as part of their own incentives package for purchasers in advance of the budget announcement… commendable approach and most likely very welcome.”