For buyers of UK property hoping to cash in on a government tax break, getting their purchase across the line is a race against time.
The stamp duty land tax holiday in England and Northern Ireland, first unveiled by Chancellor of the Exchequer Rishi Sunak in July last year, allows the first £500,000 ($697,747) of a purchase to be exempt from the levy, with similar schemes unveiled in Wales and Scotland.
With the tax break ending on June 30, tapering down to £250,000 from July 1, there has been a surge in buyers trying to complete their transactions before the deadline to bag a saving worth up to £15,000.
“We are hearing of conveyancing lawyers working through the night at the moment to try and meet the deadline,” Camilla Dell, managing partner at Black Brick, which helps Middle East investors purchase property in the UK, told The National.
“However not all will make it – there are just days to go until the stamp duty holiday ends and over 700,000 transactions going through the conveyancing process.”
While Middle East investors “have certainly benefited” from the tax bonus, Henry Faun, partner and head of Knight Frank’s Middle East private office, said its removal will not dent the “strong appetite for UK property“.
“The holiday has been positive for buyers but when it ends, we see the strong interest for UK property from the Middle East region continuing as normal,” he said.
Taxation is already an issue for Middle East investors in UK property after the government bumped up the levy for non-resident investors by 2 per cent in April. This was on top of an existing 3 per cent for buying a buy-to-let or second home.
However, Mr Faun said despite a further tax increase from June 30, strong demand for UK property “will not be quelled”, with the key drivers for interest being the country’s consistent market, ease of language, education system and lifestyle.
One issue actually preventing transactions with Middle East buyers is the UK’s traffic light system for travel, with most countries in the region on the red list, meaning a 10-day hotel quarantine for anyone wanting to fly in to view property.
“There is significant pent up demand across the Middle East for property in the UK and specifically London,” said Mr Faun.
“While we conduct digital viewings, live tours and 3D property walk-throughs, many clients prefer to travel and view the properties in person before committing to the purchase.”
Ms Dell agreed that the end of the stamp duty holiday will have a negligible effect on appetite for UK property from Middle East investors as many are unable to travel anywhere, because they are based in red list countries.
Those going ahead with deals at the higher end of the spectrum will also be unfazed.
“I don’t think a £15,000 saving makes a huge amount of difference to a Middle East buyer spending many millions on UK real estate. They tend to be more concerned about other taxes such as inheritance tax and capital gains tax, and of course currency rates,” said Ms Dell.
However, the stamp duty deadline is much more of an issue for buyers based in the UK, now rushing to complete deals ahead of the deadline.
Some are resorting to extreme measures to ensure they complete in time, such as cutting corners on essential surveys for flood threats or subsidence, with 50,000 buyers at risk of missing the deadline, according to property website Zoopla.
Meanwhile, demand for removal vans has soared, jumping 200 per cent ahead of the deadline compared to the same time last year, according to website AnyVan, and some buyers are putting possessions into temporary storage as the cost of moving home doubles.
Conveyancers have also raised fees to cope with the surge in demand.
“One thing is abundantly clear, the stamp duty holiday has had a material effect on England’s housing market,” Danni Hewson, AJ Bell financial analyst, told The National.
“Figures from the Office for National Statistics show a record number of transactions across the UK in March as people in England raced to beat the original deadline.”
Mr Sunak introduced the stamp duty holiday in July last year to help bolster the property sector as the UK’s wider economy was hammered by the economic fallout of the Covid-19 crisis.
The tax saving coupled with pent-up demand for property after the market was shut during the first lockdown sent the market soaring, with property prices rising 8.5 per cent last year.
The original March 30 deadline for the end of the tax break was extended by Mr Sunak in his latest budget statement to prevent the market falling off a cliff edge as the country was still under tight Covid-19 curbs at the time.
In May, prices surged to an average record high of £261,743, according to the Halifax House Price Index, up 9.5 per cent from the same month a year earlier – equivalent to £22,000 over 12 months.
With buyers “on a clock once again” house prices are “on fire”, with more records set to be broken as the June deadline approaches, said Ms Hewson.
The end of the full stamp duty holiday is unlikely to halt momentum either, she said, because the scheme is tapered so people “snapping up property between £125,000 and £250,000 will still save cash until the end of September”.
Offices and gardens now have more sway than good transport links and people are prepared to pay for this lifestyle reset.
Danni Hewson, AJ Bell
Other factors driving the market include the shift to homeworking, which has fundamentally altered what many people are looking for from their homes.
“Offices and gardens now have more sway than good transport links and people are prepared to pay for this lifestyle reset, particularly as many people who were able to work from home have also amassed savings through lockdowns,” said Ms Hewson.
“It’s no surprise house prices have seen the greatest surge across the north of England where average prices are still well under the £250,000 threshold and even post September the stamp duty payable won’t phase people relocating from more expensive parts of the country. Demand is far outstripping supply and the sharp rise of low deposit options is also adding to the number of buyers swimming in the pool.”
Despite the number of Covid cases rising in the UK once again, Ms Dell said she is “almost 100 per cent certain” the tax break will not be extended further.
“The chancellor would be mad to add further fuel to the fire as it’s quite clear from the data that the housing market doesn’t require any further government support,” she said.
Buyers from the Middle East are already playing a more active role in the UK property market, snapping up 16 per cent of all real estate by volume sold to overseas buyers in the first three months of this year, according to recent data from property consultancy Knight Frank.
The proportion of properties bought by Middle Eastern investors was lower than those from Europe (who made up 59 per cent of overseas purchasers) and Asia (18 per cent), but was the highest since the onset of Covid-19 and is expected to rise further when travel restrictions ease, the consultancy said.
With numerous buyers waiting for travel to open before they close on their investments, Mr Faun expects the market to surge even more.
However, prices in the UK capital are on the up anyway, he said, picking up from where they left off after the general election in December 2019, with Middle East buyers able to recognise good value after five or six years of falling prices.
UK property prices are expected to see cumulative growth of 24 per cent by 2025, according to Knight Frank’s latest outlook figures. Prime Central London is looking to grow the most in the coming few years, by 25 per cent, with rival agency Savills offering a similar outlook for the next five years.
“Prime Central London seems ripe for a revival at the moment as the majority price growth has been taking place outside of the capital,” said Ms Dell.
Mr Faun said the benefit of the tax break tapering off as opposed to completely ending is that it removes the need for a “cliff edge” moment.
“This is where transactions could potentially be renegotiated or withdrawn if the tax holiday completely ended all at once,” he said.
“The market has been fully aware of the tax holiday tapering off for many months, so we do not foresee any significant shocks.”
Ms Hewson is a little more cautious, however,
With support measures such as the furlough scheme for the jobs markets and mortgage payment holidays unwinding, for some people the pandemic is about to extract a huge cost, she said.
“The need to downsize will distort the market, particularly in parts of the country where house prices are highest,” she said.
“But overall circumstances have conspired to relight the fire under the housing market. Barring a massive building programme, a huge interest rate hike or another economic bomb it’s unlikely house prices will go anywhere but up, at least in the short term.”