The property market is amid a mini-boom fuelled in no small part by the government’s generous stamp duty holiday. However, for it to achieve its goal, all, particularly the lenders must play their role. Tiba Raja offers us her thoughts on what is required for the stamp duty holiday to achieve the maximum impact.
The stamp duty land tax (SDLT) holiday is the furthest-reaching act so far by the UK government that aims to alleviate the economic inactivity brought on by COVID-19. With lockdown measures having stagnated market activity, new initiatives were introduced to attract investment back to the UK.
With the UK’s real estate market worth a total of £1,662 billion, ensuring property transactions continued unabated remains a key aim of the government.
As such, the SDLT holiday was implemented on July 8th, exempting the first £500,000 of all property sales across England and Northern Ireland from stamp duty tax until March 31st, 2021.
Immediately, the market’s reaction was positive. Nationwide recorded impressive house price growth in its House Price Index for August, measuring an annual rise of 5.2% and month-on-month growth of 2%.
With both these figures surpassing what many estate agencies were forecasting for the UK property market in 2020, it’s evident that the SDLT holiday has gone some way in unleashing the pent-up demand for property that accrued during the lockdown.
However, as Market Financial Solution’s new research shows; everything is not as simple as it may seem. Of the 1,262 homeowners and homebuyers that we surveyed, over half (52%) stated that they were too concerned about their ability to acquire a mortgage to even attempt to take advantage of the SDLT holiday.
A disappointing holiday?
No matter how many tax breaks the government offers prospective homebuyers, it will amount to nothing if buyers are not able to access the finance needed to actually purchase properties.
It is unfortunate, then, that in addition to the 52% concerned about their mortgage approval viability, 43%told MFS they have encountered significant delays or complications when applying for a mortgage from their bank.
In the context of COVID-19, this does make sense. When lockdown began, the majority of traditional lenders withdrew some or all of their mortgage products from the market en masse in a bid to minimise their risk exposure amid market uncertainty. While these same lenders have since returned, the application process has become more complicated. Banks are simply not willing to take on cases that are complex, and buyers face longer processing time as a result.
Perhaps more concerningly, a third (32%) of those whom MFS spoke to said that their mortgage application had been rejected entirely since the introduction of the SDLT holiday. Others said they have missed out on a property purchase at the critical closing stages. Although this practice, known as gazumping, is frowned upon; 45% of prospective buyers told MFS that this had recently happened to them.
For all these reasons listed above, some prospective homebuyers are now researching alternate financing methods to ensure that they can complete on their property transactions.
Learning from alternative finance lenders
Of those we surveyed, 36% told MFS they were likely to consider alternative finance options such as bridging loans in the coming 12 months. This is because alternative lenders implement evaluate each application on a case by case basis; as opposed to the more box-ticking methods utilised by more traditional banks.
Without being burdened with this additional bureaucracy, they can operate far more efficiently when deploying loans to successful applicants, lessening the chances of being gazumped and issuing finance quickly. This gives the buyer the confidence to act with certainty. Indeed, I believe there are important lessons on offer from the alternative finance sector that mainstream lenders should be taking note of.
The lending industry must ensure that buyers are not denied access to the benefits of the SDLT holiday due to factors beyond their control. Quite simply, lenders must keep lending, for the full potential of the SDLT holiday to be realised. Banks need to work closely with brokers and property investors so that they can confidently complete on transactions during the holiday period. Doing so will help bring about the UK’s post-pandemic economy recovery.
Tiba Raja is the Director of Market Financial Solutions – an independent bridging finance provider that arranges fast and flexible bridging to intermediaries. You can get in contact with Tiba and view Market Financial Solutions full range of services at www.mfsuk.com.
Read more articles on the current state of the UK property market in our dedicated section here.