What the extended stamp duty holiday and other Government measures mean for the housing market

By Jo Bentham12th May 2021

After the first cuts to stamp duty were announced on 8th July 2020, prospective home-movers rushed to take advantage of the incentive that could save them up to £15,000.

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Rightmove visits increased by 22% within the first half hour after Rishi Sunak, Chancellor of the Exchequer, made the announcement in his economic update, and the number of enquiries to estate agents regarding properties for sale was up 93% on the same day in 2019. 

The stamp duty holiday was due to end on 31st March 2021, but the Chancellor revealed an extension in his March Budget, with the cuts now in place until 30th June 2021. 

What occurred in the aftermath of the extension announcement was much of the same. Rightmove have reported a record-breaking 9.3 million visits to the site on Wednesday 7th April, and the housing market appears to be at its busiest in recent time.

Together with the launch of the mortgage guarantee scheme – which has seen participating lenders re-introduce 95% loan-to-value (LTV) mortgages after most were withdrawn amidst the Coronavirus crisis – that will run from April 2021 to December 2022, it’s no surprise that homes have been selling at the fastest pace ever recorded.

 

The impact for property investors

With regards to economic growth, the effect these Government measures are having on housing demand is positive. For job creation, housing is one of the most important sectors, whilst home-movers contribute an estimated £12 billion to the economy each year.

And, of course, for house-hunters, the measures are equally advantageous. But what about those looking to invest into properties, rather than purchase a main residence?

One drawback of the housing market boom is that the demand is undersupplied – as the UK was facing a chronic housing shortage even pre-pandemic. 

Government-set housebuilding targets are not being met, and Rightmove stated that even the 145,000 new listings on the site in April was not enough to match buyer demand. 

This is where experienced investors have the potential to earn high returns on impact-driven investments, making the most of the surge in demand that has been spurred by the stamp duty holiday and mortgage guarantee scheme.

Read more:why does the UK housing sector need alternative investment?

 In order for the UK to begin building even close to the number of homes needed – which is estimated at 345,000 at present, with only 243,770 delivered between 2019 and 2020 – small and medium-sized housebuilders must re-establish themselves in the market. 

After the 2007/08 financial crisis, the number of SME housebuilders began to dwindle – falling from more than 12,000 in 1988, to around 2,500 currently. And with this, the percentage of new homes SME housebuilders were responsible for delivering also dropped from 40% to just 12%. 

This is unfortunate on two levels – it of course cuts the provision of much-needed housing significantly, but it also decreases the richness of housing on offer. Small and medium-sized housebuilders are able to provide unique, mixed-tenure homes in the right locations at the right times due to their often in-depth knowledge of local areas and the market need within those areas. 

And to support the re-emergence of regional housebuilders, experienced investors can provide alternative finance through the likes of property bonds. Whilst investors into property bonds don’t benefit from the aforementioned Government measures in a direct manner – as they are not purchasing properties outright, but rather aiding in financing the build of entire developments – the increase in demand due to the cuts renders their support of SME housebuilders more important than ever. 

What the experienced investors do have the potential to receive in return however are target returns of between 4% and 8%, opportunities to add the popular asset of property to their portfolio without the maintenance required of other investment routes, and the chance to make a positive societal and economic impact with their investment. 

As well as this, some property bonds can be held in an Innovative Finance ISA (IFISA), meaning all returns are free from income and capital gains tax – which also makes them a tax-efficient investment consideration for those looking to maximise returns.

 

The growth of the housing market 

The growth of the housing market since restrictions were lifted on the UK’s first Coronavirus-related lockdown has been exponential. Whilst working from home already caused some to re-evaluate their living situations and go on the lookout for larger homes with gardens, the stamp duty holiday and mortgage guarantee scheme have further strengthened demand. 

This demand – much of which is being undersupplied – has in turn provided even more scope for small and medium-sized housebuilders to help in tackling the UK’s housing shortage, which then gives experienced investors countless opportunities to make impactful, potentially lucrative investments.