Now Might Be the Best Time for a Holiday Home or Buy-to-Let
Written on 19 August 2020
Over recent years the property market has been slow and we’ve only seen activity decline further over the last few months given the particular challenges brought upon us by COVID-19. However, we’re now seeing spikes in demand in both the personal residential and buy-to-let markets. Understandably it’s been reported that estate agents outside cities have been incredibly busy helping people to move home or even find a second home.
There are currently a lot of people looking to move away from densely populated areas and others looking to buy holidays homes for “staycations” rather than travelling abroad. There’s also now a shortage of rental properties for UK tenants due to the fact that landlords have been through a lot of changes lately and possibly held back from enlarging their portfolios – until now.
Help for both these sectors has unexpectedly come from the Government with Rishi Sunak’s Stamp Duty suspension for the first £500,000 of a residential property purchase. This actually includes not only the purchase of main residence but buy-to-let properties and second homes. The new change is open to all purchasers and temporarily renders the previous first-time buyer exemption - where first-time buyers paid no Stamp Duty on the first £300,000 of a main residence purchase for up to £500,000 - redundant. The universal application of this Stamp Duty change means that borrowers with applications where one applicant is a first-time buyer and one is not will now also benefit.
The average Stamp Duty saving is estimated to be around £9,000 for many people while the maximum saving is £15,000 – a not inconsiderable sum even for landlords buying another rental property or for people looking for a holiday home in their favourite UK destination. It should be made clear that these purchases for additional properties will still attract Additional Stamp Duty at 3% of the purchase price but for many the current exemption will make purchasing now worthwhile.
The Government has placed a deadline for completions – 31st March 2021. As such - given that for holiday homes and rental properties there may well be a chain of properties to complete - we expect that any purchases should have prices agreed and chains completed by 1st February 2021 at the latest. This will give solicitors and lenders 8 weeks to process applications, make enquiries, settle on exchange of contracts and complete the transactions. There has been no talk of extending that deadline, although if it is successful the Government may choose to do so - but we’re not assuming this to be the case at all.
With the property market running as hot as it is and prices now generally above the levels they were pre-lockdown, people should act swiftly since the rate at which prices are rising means the savings made in Stamp Duty will begin to be eclipsed by the increase in prices. We expect this to be a fairly busy time over the next 6 months as demand continues despite the economic predictions.
Next year is very much unknown as, although many commentaries foresee negative conditions, the housing market tends to behave a little differently. When prices are rising it’s usually due to there being a shortage of decent properties on the market. People then tend to notice that now might be a good time to sell so they start to spruce their property up, declutter and get the estate agents in, who are exceptionally busy at present. Then, supply increases and prices tend to level off.
Similarly if prices fall, then people may decide not to sell unless they have to - which is understandable - and supply will then reduce to match the reduced demand and prices will stabilise. Some economic forecasts are predicting a less severe recession with the economy returning to some normality earlier than expected. If so, the housing market may well not suffer the significant price reduction many predicted during lockdown.
Those new to buying rental properties or holiday homes who need a mortgage should talk to an adviser as soon as possible to get the finance agreed prior to making an offer on a property. Such mortgages are usually available on an interest-only basis, which will help keep monthly costs down. Also, the mortgage products themselves are at historically very low rates - possibly the lowest ever seen in some cases. Preparation for a swift transaction will always help, especially if you find your dream holiday home or ideal rental property in the run up to the rapidly approaching 31st March deadline.