Previous changes to SDLT have sought to help first-time buyers gain a foothold in the market. However, the latest cut extends savings to investors as well. Although they must still pay the existing 3% surcharge on secondary property investments, they will benefit from SDLT relief on the first £500,000 paid towards properties purchases up until 31st March 2021.
As a result, the next few months may seem like an opportune moment for investors to re-enter the property market and take advantage of reductions to expand portfolios - part of a suite of moves that the government has made to stimulate the economy. For overseas investors in particular, with the Pound still weak against the majority of global currencies, the SDLT holiday is a welcome window of saving before they become liable to an additional 2% SDLT surcharge which comes into effect from 1st April 2021, when the current SDLT holiday ends.
But as the pandemic continues to evolve daily and the future of the market remains largely unpredictable, is now the right moment to invest? Or should investors be biding their time?
A resilient market
To help put the recent changes to SDLT into context we spoke to real-estate expert Tom Bill, Head of UK Residential Research at estate agent Knight Frank. Commenting on the holiday, Tom believes that it is still too early to say what impact it will have, but it should not be seen as an indication that the market is struggling.
He notes that despite an initially dismal outlook, the property market has proved extremely resilient after the initial shock of the pandemic. Following a harsh drop-off in March, when £82bn worth of sales were put on hold, Knight Frank has since seen supply and demand return as strong as ever, and in June alone, it recorded the highest amount of sales agreed in more than 20 years.
Tom believes that implications surrounding Brexit and investors facing higher taxes and tighter restrictions on borrowing over the past few years have contributed to pent-up demand, resulting in stronger activity in recent months.
Technology has also most certainly played its part in supporting the resilience of the market under the pandemic. Property viewings, valuations and transactions that would have previously ground to a halt have been able to continue, albeit in a virtual capacity, to support demand.
Therefore it’s unfair to say that the SDLT holiday was introduced as a measure to help the property market alone, but rather demonstrates the role the government sees it playing in reinvigorating the wider economy.
The Covid catalyst
Experts have already begun to weigh in on predictions we could expect to see as a result of the SDLT holiday - from an increasingly competitive buying and selling market and fluctuations in property prices, to shifts in regional investments.
However, Tom Bill believes many predictions are rooted in trends that were underway prior to the pandemic, and will likely be catalysed by the SDLT holiday - something we also noted in our article on a New World Disorder, exploring key macro trends in 2020 exacerbated by Covid-19.
For example, data gathered by specialist lender Precise Mortgages revealed that one in seven UK buy-to-let landlords were already looking to expand their portfolios as far back as February. A study in June, from Mortgage for Business, also found that some 30% of property investors it surveyed were looking to remortgage with a view to expanding portfolios and growing cash reserves.
Trends in regional investments are also likely to accelerate in wake of the SDLT holiday. In Investec’s 2018 Prime Property report, our survey of investors had already begun to reveal an increased interest in property hotspots outside London, mostly in part due to the normalisation of flexible working and improving transport links.
Now under the pandemic, we’ve seen this interest catalyse as demand for rural property grows amidst a remote-working population reassessing where and how they need to work. During lockdown, Rightmove reported a surge in online searches for properties in remote or coastal areas. Now, with the Stamp Duty reductions, we can only expect this trend to grow.
Tom suggests this could be shortlived however, as the enduring global appeal of London and a centuries-old tradition for urbanisation means the trend can only spread so far. Furthermore, further data from Rightmove reveals the average saving in the north east will be just £646, versus £15,000 in London.
“If you’re a High Net Worth Individual in a liquid position, you will have an edge in the market,” Tom Bill notes. However, he also emphasises that for investors looking to buy under the SDLT holiday, it will be a case of “doing your homework”.
With the words “unprecedented” and “uncertain” still being used to describe many aspects of our economy, being aware of the wider macroeconomic factors at play will be vital for investors approaching the property market. Although the pandemic may have overshadowed the last few months, factors including ongoing Brexit negotiations still have the potential to have knock-on implications. It’s even possible that as trade deals are secured, the previously weak pound may begin to appreciate, which could affect overseas investors’ returns.
Overseas investors will also need to be increasingly aware of taxable presence when doing business in the UK, especially if potential travel restrictions are imposed.
For domestic buyers, other factors to consider will be when the government’s ongoing Job Retention Scheme comes to an end in October. With predictions for unemployment sitting at 10% once the scheme comes to an end, this will no doubt have a knock-on impact in the property market.
But it’s not all doom and gloom. With glimpses of a Covid-19 vaccine on the horizon, all the above factors could all be turned on their heads if a cure is proven effective.
Overall, it’s clear that the SDLT holiday has the potential to have massive implications for the property market in this short window of time and inspire investors in a way that has been missing over the last few years of Brexit negotiations and political uncertainty.
However, for those looking to buy it will be vital to not only act quickly, but smartly as market trends and macroeconomic factors continue to develop in the wake of the pandemic.
This article is for general information purposes only and any reference to Tax should not be used or relied upon as professional advice. It is based on regulations in effect at the time of publication and no liability can be accepted for any errors or omissions, nor for any loss or damage arising from reliance upon any information herein. It is advisable to contact a professional advisor if you need further advice or assistance as the tax implications can vary depending on an individual’s personal circumstances and may be subject to change in the future.