London — The UK housing market’s recession-defying surge is about to face a reality check.
A government perk that has bolstered demand for homes has only two months left to run, and almost one-in-six transactions under way are likely to miss out. The end of the £15,000 tax break threatens to puncture a boom in the market that stoked prices to the fastest gains in six years.
“The last three, four months have been incredible — you had lots of pent up demand anyway” from the temporary closure of the market in the spring of last year, said Andrew Montlake, brand director at mortgage broker Coreco. “The government poured petrol onto that with the stamp duty holiday.”
Vendors are already dropping their asking prices to attract buyers before the March 31 deadline, and there are concerns transactions may collapse completely if they are not completed by March. Loan provider Halifax predicts prices could slump as much as 5% this year.
It is the latest in a series of cliff edges that chancellor of the exchequer Rishi Sunak is facing as measures to boost demand during the first wave of the pandemic expire. Other forms of support have already been extended, and while Sunak has not said he will postpone the deadline, a bloc of Conservative lawmakers is pressuring him to do just that.
A spokesperson for the Treasury said the “time-limited nature” of the cut “is what has encouraged people to take advantage of the scheme.” Still, authorities indicated they are keeping stamp duty under review and closely monitoring the market.
The government will have a chance to announce the future of the policy at its March 3 budget, four weeks before the holiday expires.
For London real-estate agent Liana Loporto-Browne, the rush to beat the deadline while homeschooling her children is proving a challenge. Though the firm has tried to streamline the buying process, she still sees a potential loss of at least 30% of agreed business from the past three months if the stamp duty ends as scheduled.
“Because of the delays, because of Covid, because the conveyancing process is taking so much longer than it normally would, I don’t think it’s fair to keep this deadline,” she said.
The housing industry was one of the few bright spots in the UK’s economy during 2020, with home values soaring to their highest level last month. After being shuttered during the initial lockdown, the market was already picking up by the time Sunak cut the levy in July, boosted by pent-up demand and Britons’ desire for homes with bigger gardens and more home-office space.
Similar tax breaks in the past have tended to disrupt the housing market, prompting people to bring forward buying decisions that they might have put off otherwise, said Richard Donnell, research director at property website Zoopla. “These holidays tend to be brought in periods where the market is weak to try to stimulate it — the challenge at the moment is, it’s not like the housing market’s weak.”
While real-estate agents have been among the firms allowed to remain open during England’s third national lockdown that started in early January, the surge in demand has put pressure on a sector which was already struggling to adapt to Covid-19 restrictions.
The average time to complete a purchase has stretched to over four months, according to Rightmove, which predicts that 100,000 of the 613,000 agreements already in the pipeline will close after the March deadline.
“The challenge of processing so many transactions in less than three months is made even tougher by the new lockdown restrictions, Covid-19 sickness and homeschooling further reducing capacity,” said Tim Bannister, director of the property website.
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