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Because of the combination of a spike in demand and restrictions in working practices, the national average conveyancing transaction time is now nearly 5 months. That means that any property transaction that is not already in progress is unlikely to complete before 31st March 2021. And, in England and Northern Ireland, that has implications for any case that is either taking advantage of the Stamp Duty holiday or currently qualifies for the Help to Buy scheme. Do your clients have contingency arrangements – such as additional funding to cover an SDLT payment - if they miss the 31st March deadline?
The Stamp Duty Holiday – A Recap
In the most recent example of the Government reducing SDLT rates to stimulate the property market, this tax has been decreased to zero up to a property value of £500,000 until 31st March 2021. The stimulus appears to have worked; residential property transactions rose 21.3% in September 2020. (SDLT applies above £500,000, with 5% payable on the next £425,000, 10% on the next £575,000 and 12% on any remaining amount.) This applies for residential property purchases and any remortgages where additional borrowing is required. If your client is purchasing a second home or an investment property an additional charge of 3% is applied. There are currently no plans to extend the Stamp Duty holiday, although there may be further government initiatives launched nearer the time.
How long does it take to get a mortgage offer?
The average time to get a mortgage offer can be up to 40 working days in current market conditions. All lenders are extremely busy and are taking significantly longer to process applications than intermediaries and their clients have been used to, due to additional information required in a COVID-19 world. You can help speed the process up by supplying all the references needed at Decision in Principle stage and taking a look at the lender’s mandatory document requirements before you submit an application, as this will enable underwriters and administration teams to avoid any delays when processing your case.
What happens if your client’s case misses the 31st March 2021 deadline?
1. Stamp Duty Holiday
If your client’s residential property purchase completes after 31st March 2021, it will be subject to new Stamp Duty rules:
|Property Value||Stamp Duty|
|Up to £125,000||Zero|
|The next £125,000||2%|
|The next £675,000||5%|
|The next £575,000||10%|
|The remaining amount||12%|
Of course, if your client is purchasing a second home or an investment property an additional charge of 3% is applied.
Note that First Time Buyers will benefit from a discount to these rates, with no Stamp Duty applying up to £300,000, with a 5% tax on the next £200,000. There is no discount for purchases over £500,000.
2. Help to Buy Scheme
More than 270,000 new-build homes have now been bought using the Government's Help to Buy Equity Loan across England. The current scheme will come to an end on 31st March 2021 and will be replaced immediately by a new scheme with 2 key differences:
a. It is for First Time Buyers (FTBs) only – not for subsequent movers or for those who have owned, inherited or been gifted a property anywhere in the world. If one applicant is a FTB and the other is not, they will not be jointly eligible for the new scheme.
b. It is subject to regional price caps (available at https://www.helptobuy.gov.uk/equity-loan/help-to-buy-equity-loan-2021-2023/)
If your client is not a FTB, they will not be able to continue with their purchase of a property using the current Help to Buy Scheme after 31st March 2021 and must make alternative arrangements.
Even if your client is a FTB, they may find that the property they want to purchase is too expensive to be included in the new HTB scheme after 31st March 2021.
If your client has not reserved their property and been accepted for the current HTB scheme by 15th December 2020, they will no longer qualify.
How are you managing your clients’ expectations?
Are you setting out the following points so that they understand how they can support you in getting their case ‘over the line’?
- Current market conditions are extending mortgage processing and property transactions times.
- That has implications for their transaction in the New Year, particularly if it falls through.
- You will do what you can, but there are factors outside everyone’s control.
- You and your clients must work together to create a contingency plan, particularly to cover the possibility that:
1. As things stand, they will need to fund the Stamp Duty on their purchase if it completes after 31st March 2021.
2. They or their property may not qualify for Help to Buy after 31st March 2021.
Please help mortgage lenders and conveyancers to help you help your client.