Bridging loans and stamp duty – can specialist finance cover the levy and help with a new deadline?

Technically, yes. Bridging loans are primarily used to “bridge the gap” between property investment transactions. Often, this involves securing a property in the short-term, while long-term solutions are found. But, bridging loans and stamp duty can be intermixed in a property investment strategy.

Specialist finance can be used to clear existing finance, fund a business venture, or bridge a funding gap. When assessing your claim, we focus on understanding the security asset’s value, and your exit strategy.

If you’re planning to utilise bridging loans to cover a stamp duty bill, you’ll likely be making a substantial investment. Our funding starts from £100,000. Comparatively, average stamp duty bills reached around £5,800 in 2022.

Source: The Telegraph

What’s causing this question to be raised?

If you’re thinking about bridging loans and stamp duty at the same time, you’re probably not the only one. The property market has been swayed by several stamp duty changes in recent years. While stamp duty bills may individually be relatively low, we’re collectively paying huge sums to cover the levy. Last year, homebuyers paid a record £16.2bn in stamp duty.

It’s no wonder the government targeted the tax for reform. In July 2020, at the height of the pandemic, then Chancellor Rishi Sunak introduced a stamp duty holiday to boost the UK property market. Eventually, the scheme was extended into 2021.

Buyers completing on a property for less than £500,000, before July 2021, didn’t have to pay stamp duty at all. Reduced rates were also available. Additionally, thresholds were raised, with the latest update occurring in September 2022.

Currently, stamp duty is usually levied on increasing portions of a residential property’s price. There is nothing to pay on values up to £250,000. The next £675,000 (the portion from £250,001 to £925,000) will face a 5% charge. The next £575,000 will be charged 10%, and remaining amounts above £1.5 million will be taxed at 12%.

Source: Gov.uk

What impact did the stamp duty holiday have on the market?

The stamp duty holiday encouraged buyers to act. After the initial introduction, 1.3 million buyers in England paid no stamp duty on the first £500,000 of their purchases. Meanwhile, estate agents reported a boom in enquiries.

House prices rose at the fastest rate seen since 2004. Between July 2020 and December 2021, the average price across all property types in England rose from £253,226 to £285,935, according to land registry data.

But while the stamp duty holiday had a positive impact on prices, the market somewhat went into reverse when the taps were turned off. Average house prices fell by £6,000 between September and October 2021, following the end of the holiday.

Also, demand for property dropped in the immediate aftermath. UK house sales fell 52% in the month after the deadline. While the impact of the holiday has started to diminish, stamp duty rules may come to the forefront once more over the coming years. A fresh deadline is on the horizon. Bridging loans and stamp duty queries could skyrocket.

Source: Unbiased, Land Registry, This is Money, The Guardian

Get ready for a new deadline, and ramped up demand

More stamp duty cuts were announced in September’s “mini budget”. They were intended to be permanent. But, following a somewhat disastrous reception, the government was forced to U-turn on many of its new promises.

Chancellor Jeremy Hunt delivered an Autumn statement in November. He confirmed the stamp duty cuts would remain in place, but only until March 31, 2025. We’ve seen how property investors and homeowners were keen to take advantage of generous tax perks in recent years. We may see another stamp duty rush emerge as this new deadline draws near.

But, where demand rises, property investors could struggle to get ahead. Mainstream lenders and high street banks have tightened their criteria in recent months. UK mortgage approvals fell to the lowest level seen since mid-2020 in late 2022.

Also, there are around 3,000 fewer products available now than there were last year. With lending appetite low, it’s unclear if mainstream providers will be ready – let alone willing – to take on new stamp duty rushes.

Source: FT Adviser, Bloomberg, Gov.uk, Yahoo Finance, Moneyfacts

How specialist lenders step in

Fortunately, the specialist lending industry will be there to support property investors in need. As last-minute buyers sought to take advantage of the stamp duty holiday, we were able to keep up with the intensity of the market.

Specialist lenders are primed to adapt to these kinds of unique, somewhat unexpected market movements. We can issue bridging loans in as little as 3 days. Giving you time to spare for hitting that looming deadline.

Our flexibility also allows us to not only adapt to your circumstances, but also keep up with changing legislation. We take the macro-economic environment into account when assessing your plans. We understand how new tax rules, shifting demand, and political instability could impact your investment. Bridging loans and stamp duty headaches could be eased with our specialist lending products.

If you want to get ahead of another last-minute sprint, we may be able to get your property investment plans to the finish line before others have even started the race.