As The Market Enters A Quieter Period, What Lessons Can We Learn From The Stamp Duty Holiday?
Nikes Khagram, founding partner and director, KSEYE, explores what we can learn from the stamp duty holiday as the market quietens down.
With the frenetic activity of the past 18 months looking likely to cool following the stamp duty holiday’s conclusion, the property sector now has a rare opportunity to draw breath and assess how the market is likely to evolve in the coming months.
Reflecting on the SDLT holiday period will naturally lead to differing opinions – the sector contains a huge number of stakeholders, each of whom will have their own take on the relative successes or failures of the schemes. For instance, it would be easy to suggest that buy-to-let investors and homebuyers benefited significantly from the SDLT holiday, in the short term at least. However, figures released by the Office for National Statistics showed average UK house prices increasing by 8% (or £19,000) in the year to July 2021. In other words, the uptick in property prices actually exceeded the total tax savings on offer (£15,000).
One thing we can say for certain is that lenders, agents, legal firms and essentially any organisation involved in the transacting of real estate will probably have been busier than normal since July 2020.
This is certainly true of bridging loan providers, which have in many cases experienced a surge in applicants who were looking to capitalise on the stamp duty holiday, yet have been hampered by the shortcomings of traditional lenders.
How could the market shape up going forward?
Taken in whole, the UK economy shrunk by nearly 10% over the course of 2020, highlighting the resilience of the property sector (where house prices rose sharply) in the face of broader economic downturn. This indicates a number of things; in particular, the role of property as a cornerstone of the UK economy, marking it out as an evident ‘safe haven’ asset that should continue to attract investors even as uncertainty continues to plague many other sectors of the economy.
This hardiness to outside market forces gives rise to the larger question of how the revival of full-rate stamp duty will impact the market in Q4. There is, of course, a simple logic to the idea that re-imposing a tax of up to £15,000 will naturally lead to a cooling of transactional activity, and in turn a modest downward correction in price levels.
There are encouraging signs pointing towards price levels proving sustainable in the immediate aftermath of the pandemic. Recently, house prices were forecast to grow by 3.5% each year between 2022 and 2024, indicating a healthy return to more sustainable growth.
In this case, it is credible to suggest that the primary influence of the stamp duty holiday was not, in fact, the creation of a property bubble, but instead an acceleration of long-term annual growth trends.
Alternative finance enters the spotlight
The frenzy of activity also gave rise to an enhanced role for alternative finance products. As various deadlines for rate savings loomed over investors and homebuyers, many traditional lenders struggled to adapt to the scale and diversity of the demand. For instance, in the early months of the pandemic, traditional banks and lenders withdrew the vast majority of mortgage products from the market. This was a risk-averse move in the face of wider uncertainty and an initially depressed property market, though led to a lack of preparedness for the flurry of activity that was to follow.
The ‘tick-box’ methodology used to consider applicants by traditional lenders is often challenged by those with complicated financial structures or irregular income sources. Accordingly, the traditional lenders fell short of delivering on market demand. In H1 2021, it took 16 days longer to complete a property sale than it had in H2 of 2020, with the delay largely attributed to excess time spent on securing a mortgage. Bridging products, on the other hand, are considered on a more ‘case by case’ basis, and so can often be approved and deployed much faster.
Property chains became a more pronounced issue as the stamp duty holiday progressed, with a broken link carrying the potential cost of missing out on the savings. As brokers and buyers sought to access bridging finance to hold together fracturing property chains and afford themselves some breathing room to complete a sale with the security of having already advanced with their next purchase, bridging products came into their own. Indeed, during the stamp duty holiday, one of the major motivating factors for a rise in applicants was the need to complete in time to access the tax relief and to step in where traditional lenders were unequipped to facilitate financing.
For bridging loan providers, then, the stamp duty holiday has underlined the importance of keeping the market as liquid as possible, with ongoing opportunities to deliver personalised and high-quality service to investors, and affording a flexible service while traditional lenders shuffle their feet.
About the author:
Nikes Khagram is a founding partner and director at KSEYE, a London-based bridging lender. Founded in 2012, the company provides short-term finance solutions to property investors in England and Wales. Its mission is to transform the bridging finance experience for brokers and borrowers, ensuring they can access the finance they need in a fast and flexible way.