The stamp duty holiday announced by the chancellor is set to provide a welcome boost to the housing market, but many critics say the measure is also mottled with potential issues.
Home buyers will not pay stamp duty on purchases of up to £500,000 until March 31, according to changes announced yesterday by Rishi Sunak.
This measure is expected to stimulate demand in the short term.
Newbie buyers have already received a £300,000 threshold before paying stamp duty, which means it will be an incentive for movers and investors.
However, there are concerns that the market may suffer after initial growth.
Will Scoular, head of Investec’s private lending department, said: “We have to be careful, since withdrawing support in March next year may cause transaction volumes to slow again, which will lead to some delay in the impact of the crisis if there is no constant reform is being introduced.
“Meanwhile, unchanged stamp duty rates for homes worth more than £500,000 will continue to put the brakes on transactions and reduce the overall tax take.”
Lenders need to come back to 95 per cent LTV
According to critics, the real difference for first-time buyers will be if lenders make significant market profits of 90 and 95 percent LTV.
Martijn van der Heijden, chief of strategy at digtal mortgage broker Habito, said: “UK lenders are still withdrawing or heavily restricting the availability of lower deposit mortgage deals.
“This means that many would-be buyers looking to take advantage of this tax holiday will still struggle to get approved for the mortgage borrowing required to buy a home.
“Though some buyers who had budgeted for the tax could now use the saving to increase their deposit funds, many still won’t be able to buy unless these 90-95 per cent products make a return.
“Increased access to higher-value lending, to reduce the size of the deposit required, would be a very meaningful area of focus for lenders and the Treasury, when it comes to first-time buyers right now.”
Kevin Roberts, Director of Legal & General Mortgage Club, welcomed the lower stamp duty, but agreed that lenders needed “step up”.
He said: “These are still uncertain times and there will still be challenges for consumers, namely ensuring that they have access to the mortgages they need to move forward with their plans.
“Independent mortgage advisers will be on hand to help first-time buyers understand their options, but we would also encourage lenders to step up and return to offering the higher loan-to-value mortgages on which many of these buyers rely.”
Help to buy extension preferable
Many critics were disappointed that the expansion of the “Help in the purchase” scheme was not perceived as a tonic of the chancellor’s choice for the market.
Jan Crosby, head of KPMG’s UK infrastructure, construction and construction company, said the housing market bounced back after the closure was triggered by unmet demand.
Crosby added: “The stamp duty cut may therefore not have been needed.
“More important is providing longer term clarity on help to buy, unlocking funding for SME housebuilders to play their part – many of whom have not been supported through CBILS and accelerating the provision of affordably priced key worker family accommodation across the country.”
Jeremy Duncombe, Accord Mortgages’ Reseller Distribution Director supported the view and said raising the stamp duty threshold to £500,000 “will not ‘fix’ the market”.
He added: “There are a number of other measures which need to be given further thought and consideration by the government to make a longer term difference to those wanting to secure their own home.
“An extension to the current Help to Buy scheme which would allow for more borrowers, both first-time buyers and home movers to take advantage of the scheme would be a real boost to the industry.
“With the deadline for the current scheme looming, the delays to building work caused by the pandemic is threatening to exclude many home movers from accessing the financial support this initiative offers.”
Duncombe also suggested a review of the mortgage stress testing measures is needed.
He said: “To support more first-time buyers, a review of the current stress testing measures could make the shift from renting to owning more accessible for those who have a proven track record of meeting monthly rental payments.”