Stamp Duty holiday ended: why are house prices rising?

The new Halifax House Price Index (HPI) has revealed that house prices in the UK rose by 0.7% in August despite a forecast of 0.4% and the ending of the Stamp Duty holiday. So why are house prices still rising?

What’s happening with Stamp Duty in 2021?

The Stamp Duty holiday was introduced in July 2020 to boost the property market. Many buyers rushed to take advantage of this holiday, saving up to £15,000 on their purchases. The holiday increased demand for housing nationwide. And unfortunately, supply didn’t match the demand, leading to an increase in house prices.

The Stamp Duty holiday came to an end on 30 June 2021. However, it tapered from 1 July 2021 to 30 September 2021 to ease the transition back to the standard threshold. This means that buyers can still save on properties worth up to £250,000. But from 1 October 2021, the standard thresholds apply. However, it’s worth noting that first-time buyers can still benefit from Stamp Duty relief on houses priced £500,000 and below.

Why are house prices still increasing?

Greg Wilson, founder of Quotezone.co.uk, commented: “While the gradual winding down of the Stamp Duty holiday has impacted the number of mortgage approvals in recent months, that hasn’t translated into falling house prices.”

He also noted that house prices in areas around major cities were responsible for driving the property market higher. The pandemic encouraged homeownership in areas offering properties with more space to work from home and with larger gardens. These areas are more common in locations surrounding major cities.

Though the tapered Stamp Duty holiday comes to an end on 30 September 2021, there are still a number of government schemes available for first-time buyers to get onto the property ladder.

On one hand, we could see reduced demand from buyers once the tapered Stamp Duty holiday ends completely. On the other, demand from buyers eligible for government schemes may hold steady or even increase slightly. Generally, this shows that demand might not decrease rapidly, rather gradually.

Additionally, there’s currently a shortage of housing in areas around major cities, meaning house prices are likely to remain higher for a while. However, once the imbalance between supply and demand corrects itself, it’s safe to say that house prices may begin to drop.

Is now a good time to buy a house?

There’s no straight answer to this question, simply because all buyers have unique circumstances and different needs. That’s why the best time to buy a house is when your financial situation allows you to do so. The last t thing you want to do is end up in negative equity.

To check whether you can afford the mortgage you need, you can use our mortgage calculator. While you’re at it, it’s a good idea to check your debt-to-income (DTI) ratio to see whether you’ll be able to keep up with the monthly mortgage payments.

Note as well that you’ll likely be required to take out home insurance (buildings insurance) by your mortgage lender. Consider checking out our list of top-rated UK insurance comparison websites to find the best and most competitive deal.

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