The Government’s holiday on stamp duty payable on house purchases is starting to be wound down, which could have a major impact on shares related to housebuilding, estate agency, DIY retail and conveyancing.

From 1 July, the rate above which the tax becomes payable in England and Northern Ireland dropped from £500,000 to £250,000, and from the start of October rates return to normal.

This will likely put a dent in housing transactions given the average house price in the UK is nearly £262,000, according to the latest data from the Halifax.

The bank claims the average house price for home movers in England and Wales in the six months to June 2020 was £373,537 but following the increase of the stamp duty limit to £500,000 prices increased by an astonishing £57,790 or 15.5% to an average of £431,327 in the six months to December 2020.

As a result, the proportion of homeowners paying stamp duty on transactions dropped from 93% in the six months to last June, to just 26% in the six months from June and December last year.

That means the Chancellor will have taken a lot less than the typical £12 billion a year which the duty generates.

The majority of people taking advantage of the stamp duty holiday were not first-time buyers but people moving home for a second, third or fourth time, including those downsizing to properties just under the £500,000 threshold.

If anything, first-time buyers were penalised by the need to find even bigger deposits due to the acceleration in house prices caused by the tax holiday. Once the duty is reintroduced, however, there is no guarantee house prices will fall back to the same level.

Evidence from Scotland, where the stamp duty holiday on the first £250,000 of the purchase price ended in March, suggests house prices will continue to rise, albeit at a slower rate and buyer interest is likely to fall. In March, Scotland had the weakest figures for new buyer enquiries of any UK region, according to the Royal Institute of Chartered Surveyors.

If that trend is replicated across the rest of the UK, estate agents will be the first to feel the air being sucked out of the market while lack of supply of quality properties is likely to underpin demand for new houses.

For now, the housebuilders are still on a roll – stamp duty didn’t even get a mention in Berkeley Group’s (BKG) latest results – as are the building materials stocks, but without Government stimulus sales will eventually revert to more normal levels.

‹ Previous2021-07-01Next ›