Is the Stamp Duty Holiday Worth Buying into a House Price Bubble?

The property market has enjoyed a staggering boost since the lockdown ended as the Chancellors stamp duty holiday has convinced many home buyers that the saving of up to £15,000 now presents a great opportunity to buy a new house.

The pent up demand and the opportunity to re-consider housing requirements during the lockdown, plus the stamp duty holiday, has triggered a rush of activity in the property market that has sent property prices in the UK to an all time high. The average cost of a home rose by 2pc to £224,123, according to the Nationwide Building Society, which represents a gain of £4,400 for the average house in August alone.

Whilst it may seem attractive to save the stamp duty on buying a house now, it doesn’t take long to realise that the rise in asking prices is almost exactly matching the savings with stamp duty. Here’s how:

Without the stamp duty holiday, the would be a 2% stamp duty due on a purchase costing £224,123 so the savings in stamp duty are negated by the 2% increase in property prices. If prices continue to rise, then the stamp duty savings would be over-shadowed by the increase cost of the house that you want to buy.

A mortgage concept with a calculator

It is only when you buy a property costing £500,000 or more that the stamp duty savings overcome the rise in property prices as a 2% increase in house prices costs a buyer an additional £10,000, but they save £15,000 on the stamp duty holiday, which is good news. However, as the stamp duty holiday is capped at a purchase price of £500,000, the more you intend to spend over £500K the less it makes a difference when rising houses prices are considered.

Stamp duty savings

There is no doubt that the stamp duty holiday does significantly reduce the cost of buying and moving to a new home. House buyers spend a lot money kitting a new home out so the savings on stamp duty costs can help significantly when you have new curtains or furniture such as these excellent coffee tables to buy.

As stamp duty often has to come from savings, rather than adding it to a mortgage, the availability of this extra available cash in the stamp duty holiday period can make a real difference to making a house a home, which is why this scheme is enjoying so much success. However, there may be a sting in the tail to rushing into the property market now, as we explain below.

Orange curtains in a modern room

The direction of the property market

This stamp duty holiday has undoubtedly provided a much needed post-lockdown boost to the property market, but it has created a price bubble that cannot be sustained in the face of rising unemployment and the possibility of economic turmoil when we finally leave Europe in January.

As the furlough scheme and mortgage payment holiday come to an end, the stark economic reality of the COVID-19 pandemic will become apparent and many property experts are predicting that house price growth will slow in the final months of 2020 and prices are expected to fall in the first few months of 2021. Now seems a great time to sell, even if you then exit the market and rent however “I wouldn’t be in a rush to buy. I’d wait to see what happens to prices later this year”, said Henry Pryor, a property expert.


There is a great deal of economic uncertainty hanging over the UK. Unfortunately, it is expected that unemployment will rise significantly and the possibility of a no deal scenario with Europe is on the horizon, which will further challenge the UK economy. This is expected to impact house prices later this year and throughout next year and the value of homes is very likely to fall as a result.

An open door and a question mark

So, whilst the stamp duty holiday is very welcome, many of its financial benefits have been negated by the boom in house prices that it has triggered. The stamp duty holiday finishes at the end of March 2021 so as it usually takes three months to transact a property purchase, its impetus behind the current spike in house values will diminish after Christmas.

Saving the stamp duty does allow buyers more cash to spend on kitting out their new home, and that is very welcome, though rushing into a property bubble now, may not be the right thing to do if prices do fall next year, as expected.

It is important to realise that mortgage lenders are expecting difficult times ahead and have withdrawn many mortgage products and increased applicant scrutiny. So if the lenders are taking more care about approving mortgages and shielding themselves from negative equity, perhaps so should potential property buyers. The stamp duty holiday may not be the golden egg that it appears to be.

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