The Effects of the Stamp Duty Holiday on the London Housing Market

The Effects of the Stamp Duty Holiday on the London Housing Market

The most positive effects of Chancellor Rishi Sunak’s stamp duty ‘holiday’ are likely to be felt in London.

With the capital’s property market hit hardest by the uncertainty of Brexit and the COVID-19 pandemic, the news that buyers will now pay no stamp duty on the first £500,000 of their purchase prices until March 31, 2021 is a welcome boost to Londoners and those moving into the city.

But what does the stamp duty ‘holiday’ really mean for buyers in the capital?

Here, we’ll round up everything you need to know about the changes to stamp duty and how they’ll affect you buying a home in London...

First-time buyers and stamp duty in London

First-time buyers in London were already benefiting from zero stamp duty on the first £300,000 of purchase prices up to £500,000, following changes made in the government’s 2017 autumn Budget.

That meant that a first-timer buying a property for £450,000, for example, would only pay stamp duty on the £150,000 above that £300,000 threshold.

Under those old rules, that would have meant a stamp duty bill of £7,500, with the following breakdown:

• £0 to £300,000 – 0% in stamp duty

• £300,001 to £450,000 – 5% in stamp duty

• Total: £7,500

However, following Mr Sunak’s announcement on July 8 of the stamp duty ‘holiday’ for buyers in England and Northern Ireland, no stamp duty is payable on the first £500,000 of a property purchase.

So, the first-time buyer paying £450,000 for that London property will now pay no stamp duty at all – a saving of £7,500 compared with the old rules.

Indeed, it’s estimated that 79% of first-time buyers in London will now be able to buy a property without paying any stamp duty.

Who counts as a first-time buyer?

A first-time buyer is someone who has never purchased a property in the UK before.

So, if you’re single and have never owned a home or a buy-to-let property, you would be classed as a first-time buyer.

If you’re buying a property with someone else, perhaps a partner or a friend, both of you need to have never owned a UK property before for you to be classed as first-time buyers.

Stamp duty in London: Non-first-time buyers

Even if you’re not a first-time buyer, you should still be able to save yourself a large amount of money by buying in London between now and March 31, 2021, when the stamp duty ‘holiday’ ends.

The average price for a property in London currently stands at £628,284, according to the latest Rightmove data.

So, under the new stamp duty rules, a buyer purchasing a property for that price would save £15,000 on stamp duty compared with the old rules.

This is the breakdown:

• £0 to £500,000 – 0% in stamp duty

• £500,001 to £628,284 – 5% in stamp duty

Total: £6,414

Put simply, anyone paying more than £500,000 for a property in London will save that full £15,000 amount under the new stamp duty rules.

Property investors in London

In a major boost for property investors and landlords, Mr Sunak confirmed the stamp duty ‘holiday’ would also apply to them.

Buy-to-let investors and those buying second homes will still need to pay an additional 3% stamp duty surcharge on additional homes.

But a landlord buying an investment property for £500,000 would only pay a total of 3% in stamp duty compared with the old rules outlined below:

• £0 to £125,000 – 3% in stamp duty

• £125,001 to £250,000 – 5% in stamp duty

• £250,001 to £925,000 – 8% in stamp duty

• £925,001 to £1.5m – 13% in stamp duty

• Value over £1.5m – 15% in stamp duty

With the stamp duty ‘holiday’ in place, a £500,000 investment property would now result in a stamp duty bill of £15,000, compared with £30,000 under the old rates.

Help to Buy and stamp duty in London

The stamp duty ‘holiday’ is likely to see applications for Help to Buy in London spike in the coming months, so buyers looking to use the government equity loans could expect to see some delays in processing.

Help to Buy in London sees the government lend up to 40% of a property’s purchase price, with the buyer only needing a 5% deposit and a 55% mortgage.

The scheme is open to first-time buyers and existing homeowners buying new-build properties in London up to a maximum value of £600,000.

Will the stamp duty holiday encourage price rises?

A big concern for buyers is that the savings made from the Chancellor’s stamp duty ‘holiday’ will be eaten up by sellers hiking up prices in a more competitive market.

According to Rightmove, property prices in London have risen by 0.5% since March.

That figure, which includes the period of time since the coronavirus lockdown was lifted and the stamp duty ‘holiday’ announced, is lower in London than elsewhere in the UK, with the South East, for example, experiencing growth of 2.4% since March, according to Rightmove.

Further reading...

If you’re a first-time buyer looking to purchase your first property in the capital, take a look at our guide to getting on the London property ladder.

And once you’ve digested all that great information, check out some of the best London hotspots for first-time buyers.