Guest Blog: Learning from the Stamp Duty Holiday
By Nikes Khagram, founding partner and director, KSEYE
The stamp duty holiday has come to an end. How the initiative will be reflected upon in the months or years to come remains to be seen, but it is certain that this 15-month period will stand out in the memory.
It would be fair to suggest that the various stakeholders affected by the scheme will have different views on its relative successes or failures. Notably, those homebuyers and property investors who were able to complete transactions during the first phase of the holiday – when tax savings of up to £15,000 were on offer – will no doubt be grateful to the Chancellor.
Lenders, estate agents and conveyancers will likely share this view; since 8 July 2020, when the stamp duty holiday began, almost all businesses involved in the transaction of property will have been seen a sharp uptick in activity when compared to an average year.
That said, the somewhat frenetic pace of activity throughout the past year has caused problems. For instance, there were many buyers and investors who missed out on the tax savings due to the sheer competition for listed properties – Rightmove estimated that there were as many as 704,000 sales still going through the conveyancing process at the end of June, when the first stamp duty holiday deadline arrived, meaning that more than half a million buyers will have missed the cut.
The data tells us that the Government’s tax-saving scheme had the desired effect in incentivising transactions and fuelling house price growth. According to the latest figures from the Office for National Statistics, UK average house prices increased by 8.0 per cent over the year to July 2021, reaching £256,000 – that is £19,000 higher than when the stamp duty holiday began.
What next for the property market?
The above graph also shows the how the stamp duty holiday deadlines correspond with a sudden decline in property transactions. This was apparent in March 2021, when the original deadline was drawing near (it was, of course, then extended by three months), and again in July 2021, once the tapering down of the scheme had begun.
As such, it would be sensible to predict a calmer period in the final three months of the year; both transactions and house prices are naturally going to need to recalibrate to more normal, sustainable levels. However, we should not confuse the calming of the market with overly dramatic speculation that “the bubble is going to burst”.
First and foremost, the past 15 months have clearly demonstrated the high regard in which investors and consumers hold property – UK real estate is an asset that people, both in the UK and overseas, have a tremendous amount of faith in. And understandably so, given the performance of bricks and mortar over many decades.
According to Land Registry data, at the start of 1991, the average UK residential property value stood at £57,000; it increased more than four times over during the next 20 years. Even over the past five years, when there has been the ongoing political and economic uncertainty emanating from Brexit, along with various tax and regulatory reforms affecting the buy-to-let market, prices have continued to rise.
The steady upward march of property values should mitigate against fears of a market crash. Nevertheless, speaking from the perspective of a lender, it is always sensible to factor in the possibility of a dip in house prices when assessing cases – there is never room for complacency or irresponsible loans, be it bridging or mortgages.
Learning lessons from the pandemic
There are many lessons that lenders can take forward from the past year. For example, businesses will now have a greater appreciation for the role technology can play in improving internal collaboration, the management of deals, and communication with clients.
Linked to the digital transformation of the lending process, there is likely to now be a better understanding of how to improve efficiencies in the delivery of loans. As noted above, demand for property finance rose sharply during the stamp duty holiday, forcing lenders to reassess how they could best handle enquiries without compromising on due diligence or the quality of the products.
In truth, not all lenders – particularly high-street mortgage providers – were able to adapt quickly enough to cope with rising demand. In fact, between January and June of this year, the average property was taking 320 days to sell, a 16-day increase compared with H2 2020; mortgage delays were cited as a key factor.
Certainly, at KSEYE we had a wave of property buyers and brokers reach out to us in need of bridging finance due to another lender that could not complete on time. This became commonplace during the stamp duty holiday, and highlights that improvements are needed among some lenders if they are actually to be able to follow through on advertised rates and agreements they make to clients.
Indeed, perhaps the standout lesson from the pandemic, then, has not been in the marketing or development of property finance productions, but the practical execution. Strong funding lines, experienced underwriters, and established relationships with brokers have been among the most important qualities that have – from my perspective – separated successful lenders from less successful ones during the Covid-19 crisis.
As we enter this period of relative calm following the stamp duty holiday, now is an opportune moment for lenders to evaluate where internal improvements can be made to allow for the speedy completion of loans, not to mention a higher level of service to property investors in the future.