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Millions of homes pushed into higher stamp duty bracket

  • 04/05/2022
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More than four million homes in the UK have been pushed into higher stamp duty brackets over the last two years as house prices rocketed.

Buyer demand is putting upwards pressure on house prices, with the average home value up 8.3 per cent in the year to March 2022.

This takes the average value of a UK property to £249,700 – up £29,000 since the start of the pandemic, according to the Zoopla UK house price index.

In March alone, house prices climbed by £441, and over the last three months, the level of annual price growth was the highest since 2007.

Over the two-year course of the pandemic, total average price growth stands at 13 per cent.

However, price growth isn’t evenly spread across the country, as some of the most affordable markets are seeing the sharpest growth rates. Wales has recorded 12.1 per cent growth over the year, followed by 10.6 per cent in the South West.

Meanwhile in London – the most expensive housing market in the UK – there was a modest 3.6 per cent rise.

The property portal site revealed there was a 58 per cent increase in demand for homes in the four weeks to 24 April, compared with the five-year average.

Sales agreed in the run up to Easter also ran 27 per cent higher than pre-pandemic levels.

Higher stamp duty thresholds

As house prices rocket, Zoopla estimated a total of 3.5 million homes in England and Northern Ireland have moved up into a higher stamp duty threshold over the last two years. This is despite the government announcing a stamp duty holiday during this time.

For first-time buyers who benefit from stamp duty relief on purchases up to £300,000 in England and NI, some 1.9 million more properties have moved beyond this threshold since the start of the pandemic and the first lockdown.

This means if these homes were to come onto the market now, or in the future, buyers would have to fork out more in stamp duty than in early 2020.

Meanwhile, a further 815,000 properties have moved across the thresholds in Scotland and Wales (different levels compared to England and NI).

The property site said that when looking at the entry threshold for stamp duty, the point at which buyers would have to start paying the purchase tax, around 1.5 million additional properties will now attract a stamp duty charge, compared to two years ago.

Gráinne Gilmore, head of research at Zoopla, said: “The rise in house prices since the beginning of the pandemic, due to the demand/supply imbalance, means millions more properties are now in higher stamp duty brackets. But there are pockets of increased supply emerging, creating more choice for buyers in this busy market.”

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The stamp duty holiday had a nasty sting in the tail. Hundreds of thousands of people have actually paid more tax, thanks to the huge hike in house prices fuelled by the tax break.

“These higher tax bills are piling yet more pressure on buyers, who are already facing the stress of rampant house price rises, hikes in mortgage rates and runaway bills, which make it increasingly difficult to cover the cost of the mortgage.

“The turning point may be precipitated by mortgage lenders, who raise rates and factor in higher costs to mortgage affordability calculations – cutting more buyers off from potential loans. Neither is likely to mean price drops, but either could significantly slow the pace of growth as we go through 2022.”

Supply of homes rising

The report noted that the supply of new homes for sale is rising, up three per cent on the five-year average, but some areas are seeing significant increases.

However, “it will take some time to unwind the significant shortage of stock for sale”, Zoopla stated, which is currently sitting some 40 per cent below the five-year average.

Kensington and Chelsea in London has a 53 per cent growth in new supply, followed by Erewash in East Midlands at 45 per cent and Pendle in the North West and Elmbridge in the South East, both at 38 per cent.

Gilmore added that the pandemic-led levels of demand will start to “normalise” and price growth in 2022 will slow “although it will remain in positive territory”.

It forecasts three per cent growth in December, “but the move from 8.3 per cent to three per cent may not be a linear progression, and it may take into Q1 2023 before price growth hits this level”.

Zoopla also predicts 1.2 million transactions this year, “supported by a strong Q1 and Q2 in terms of sales agreed”.

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