Real Estate

UK stamp duty holiday extension prompts rise in mortgage demand

Rishi Sunak’s six-month extension of the government’s stamp duty holiday prompted a fresh surge in demand for home loans, according to the latest figures from the Bank of England.

Threadneedle Street data showed that in April – the month after the chancellor’s budget announcement – the number of mortgage approvals climbed from 83,400 to 86,900, the first monthly increase since November.

The chancellor had originally planned to end the tax break on homes of up to £500,000 at the end of March, but instead decided to phase out the scheme in two stages in June and September.

Analysts said the decision had provided an extra boost to an already strong housing market, with estate agents reporting rising buyer interest.

Andrew Wishart, property economist at Capital Economics, said even when the economy was locked down in February and March mortgage approvals were running at well above their pre-crisis average of 65,000 a month.

“Overall, the extension of the stamp duty holiday appears to be leading to renewed acceleration in housing market activity,” Wishart said. “But the strength of the data in February and March when the original deadline loomed suggests buyer demand will be resilient to the end of the tax break this autumn, with demand underpinned by low mortgage rates and a strong economic recovery.”

High house price inflation over the past year and the return of high loan-to-value lending meant the average size of mortgages approved rose from £206,900 in April 2020 to £232,400 in April 2021 – a 12.3% increase.

The Nationwide building society reported this week that house price inflation had hit 10.9% in May, and said it expected demand for property to remain firm even when the ceiling for stamp duty exemption is cut to £250,000 at the end of this month. At the end of September, stamp duty will be payable on all house sales of more than £125,000.

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The rush to complete house purchases before the original deadline for ending the stamp duty holiday meant the sums advanced by lenders – as opposed to being approved – fell sharply from a record high of £11.8bn in March to £3.3bn in April. Typically, it takes two months for a mortgage approval to be turned into an advance.

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Samuel Tombs, UK economist at Pantheon Macroeconomics, said Google Trends data indicated that visits to one of the three main property websites were 32% above their average for the time of the year in April and 22% above their average in May. “Nonetheless, a shortage of homes on estate agents’ books will ensure that approvals do not approach November’s 103,000 peak.”

The Bank of England said consumers continued to pay off unsecured loans – such as overdrafts and credit card debt – but at a slower pace than when spending opportunities were limited by the lockdown in the first quarter.

The £0.4bn loan repayments in April were down on the average £1.5bn between January and March, while the amount of money put into bank accounts was £10.7bn against an average of £17.6bn a month in the previous three months.


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