Six options to consider if your chain breaks and you miss the stamp duty holiday
After more than a year of driving property prices to new highs during the coronavirus pandemic; the stamp duty holiday has started to taper down.
The tax break, which has saved buyers up to £15,000 on their house purchases, will now be cut back with the maximum saving capped at £2,500. This is because the nil-rate band – the portion of a property purchase buyers don’t need to pay stamp duty on – will drop from the first £500,000 to the first £250,000. It will stay this way until 30 September, when the nil-rate will be returned to its pre-pandemic level, £125,000.
House prices have risen to record levels, with a general increase of 13% or £29,000 over the course of the stamp duty holiday according to Nationwide Building Society.
Why did the government introduce the stamp duty holiday?
When the stamp duty holiday was introduced in July 2020, it was designed to boost the property market by helping buyers whose finances were affected by Covid. It meant a saving of up to £15,000 for people buying homes.
Landlords and second-home buyers were also able to make use of the tax cut. But they still had to pay the extra 3% of stamp duty they were charged under the previous rules.
What’s the state of the current property market?
Many buyers have raced to meet the deadline; but delays with conveyancing and surveys mean that many will not complete in time due to the heightened demand. This may sound daunting if you’re in the middle of a property chain; but some will even consider pulling their transactions if they have not budgeted to pay the tax.
Whilst our team do everything within their power to stop this from happening; it sometimes does occur though no fault of anyones. However, it does not always mean that you’ve hit the end of the road. Our team have brainstormed different ways that property buyers could keep going with their purchases and keep their chains from falling apart due to the deadline.
At Century Residential, we are transparent with our buyers and make it clear from the offset that their offers should not be reliant upon the stamp duty discount. However, if you’re out of time and you can’t afford to buy without the stamp duty holiday, there are a few options that could help.
1. Renegotiate your house price with your seller
If you don’t have the funds to buy your new home and pay stamp duty, you might consider asking the person you are buying from whether they would lower the price. However, this could be risky, as it might lead them to question your commitment to buying the home, we’d advise that you discuss this thoroughly with your estate agent prior.
Nevertheless, if they are particularly keen to keep things on track, they may be willing to accept your new offer.
If you have some funds to play with, one option might be asking them to go halves. For example, if you had a £10,000 stamp duty bill; they would take £5,000 off the price and you would foot the other £5,000 yourself. However, their willingness to do this may depend on whether they have a stamp duty bill to pay themselves.
If you manage to negotiate a new price, you will need to ask your mortgage lender for new documentation which could add time and cost to the transaction.
2. Negotiate with the whole chain
There is a way to get around the problem of having to ask for a discount from someone who isn’t getting one themselves on their onward purchase. This requires some expert negotiating from your estate agent.
In short, it entails asking every member of the chain to offer a discount that equates to the discount that would be offered by the stamp duty holiday. This is more likely to be accepted [than negotiating with your seller alone], as all parties offer a more affordable discount.
If there is another buyer in a similar situation to you down the chain; it could improve your chances of success.
3. Move out and rent to keep the chain together
A common method of holding together a broken chain is by asking the seller whose buyer withdrew, to move into rented accommodation.
By most accounts, the stamp duty holiday has increased house values. So, renting for a few months might mean a chance to get a better deal on the eventual purchase if prices fall. We understand that this is a gamble, as there is no guarantee of where the market is moving next. Nonetheless, now would be the perfect time to do this. Especially with the possibility of prices lowering after the stamp duty holiday. The amount of money spent on rent for six months to a year could be less than [the extra expense of] buying in the increasing market we have seen throughout most of the UK.
If the chain has collapsed, it may be worth investigating whether you can use short-term finance to enable the purchase to continue; however this should be discussed with your mortgage broker.
4. Make sure you complete by the September deadline
If you are upset that you haven’t met the first stamp duty deadline; completing in time for the September cut-off could be the next best thing. There is common perception that the stamp duty holiday will be over on 30 June, but that isn’t the case. There are still reasonable savings to be made until the end of September; but buyers will need to act quickly.
We suggest that if a buyer starts the process in the next few weeks or so they should hopefully complete before the September deadline.
5. Hold out and hope that house prices fall
If you have had a purchase fall through, biding your time might actually save you money in the event that house prices fall; especially given that house prices have risen more than £20,000 in the past year.
This is significantly true for first-time buyers and landlords, who aren’t relying on money made from the sale of another property to fund their purchase.
There are already signs that asking prices aren’t increasing as quickly as they were earlier in the year. The most recent government data showed that the average home knocked £5,000 off its value in April; reflecting offers made when buyers thought they had missed the original stamp duty deadline in March.
Another reason why property prices have risen is the supply and demand imbalance in the market. However, that could also be set to change. Sellers who had been cautious to list their home for health reasons or lack of job security could now be tempted. Restrictions fully easing from next month and the economy bouncing back may all provide the confidence that they needed to move.
6. Don’t get too caught up in the hype
While it is frustrating to have to pay several thousand pounds more for your new home; we urge those that have the funds to proceed to think about their home as a place they will live in and enjoy for many years; rather than as a purely financial asset.
Whilst most people don’t buy homes as a financial investment – unless you’re a buy-to-let investor. People buy homes as a place to live, raise families, be part of a community, enjoy life, and grow old. Our best advice is to think long-term and buy a home that’s right for your needs; at a price that you can afford and that you plan to enjoy for years to come.
It is also worth bearing in mind that, if you pull out of a transaction, there is no guarantee you will find something else quickly. You need to consider how badly you want the property. With a shortage of stock in some price brackets and areas, you may not find another suitable property anytime soon.
Let’s have a chat
Whilst the final closure of the stamp duty holiday at the end of September may have no impact at all; we have noticed a different rise in property interest. This is due to other factors, namely the race for space, low supply, accidental savings and low interest rates.
At Century Residential we have helped many people and families during the stamp duty holiday; and we don’t plan to stop making peoples dreams a reality. So, if you’re thinking of selling or buying a property, please get in contact with a member of our team on 01634 570057.
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