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Stamp duty holiday: What does it mean for the housing and residential development market?

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Our Managing Director of Development Finance, Robert Orr, provides his thoughts on what the recently announced stamp duty holiday means for the housing and residential development sector.

The Chancellor’s decision to increase the nil rate band of Stamp Duty Land Tax (SDLT) in England and NI, from £125,000 to £500,000 will act as a short-term catalyst for the housing and residential development market.

This follows the shut-down of the sales market from mid-March to mid-May and it is expected to increase transaction volumes across the housing market of England and Northern Ireland.

The market value of quoted developers has already risen this week in anticipation of the SDLT cuts, with shares in the likes of Redrow and Persimmon increasing by around 6%.

SME residential developers will also look to benefit as demand is likely to increase for a range of homes, be it starter units for first-time buyers, family houses, retirement apartments or buy-to-let investments. Statistics from Rightmove show that 81% of residential properties on its portal are under £500,000.

Developers are also likely to see a shift in buyer preferences, as increased home working due to the lockdown influences future buying decisions. That, in conjunction with historically low interest rates and now these changes to SDLT, provide a strong support for well-designed homes in the right location.

Higher volumes of housing transactions will have also have a positive impact on associated sectors, such as construction, estate agency and home furnishing, amongst others. A healthy housing market with volumes not held back by high SDLT levels can help kickstart the wider economy.   

Negative repercussions of these changes could potentially be seen in March 2021 as we reach the deadline when the SDLT changes are set to be withdrawn. During this period, we could see a rush from buyers to complete or exchange off plan before the cut off, followed by a subsequent lull in the sales market. This is also the period when changes to the Help to Buy scheme will also come into force so it could be particularly challenging for a while as buyers adjust to the “new normal”.

The Chancellor has unveiled these changes in a bid to kickstart the housing market and provide support to those impacted financially by Covid-19. Whilst the possible benefits to the market generally are evident, it will remain to be seen whether these changes will benefit those suffering the most financially as a result of Covid-19.

Mortgage finance for those without a decent deposit is becoming more restrictive and for those that the pandemic has really hit hard financially, it is unlikely that a new property purchase would even be considered, so saving on SDLT isn’t a major issue.

Overall, residential developers across England and Northern Ireland with stock to sell over the next nine months will welcome these SDLT changes, which will help offset some of the uncertainty a more difficult economic environment may bring to the housing market.

 

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