Stamp Duty holiday ended, equity withdrawal for purchase fell away

Equity withdrawal at remortgage to fund additional property purchases fell back towards pre-pandemic levels following the end of the temporary Stamp Duty holiday, according to UK Finance's Household Finance Review for the first quarter of 2022, published in June 2022¹.

The review states that remortgaging is strong and set to remain so through the year, but that equity withdrawal at remortgage has fallen away following the end of the tax break¹. Amounts withdrawn for home improvement remain significantly elevated, which the review attributes to inflation in that sector¹.

The review also records that house purchase borrowing dropped sharply year on year, reflecting what it calls the unprecedented boom in the same period a year earlier, and adds that it is too early to say whether Covid-driven demand for property better suited to new ways of living and working has run its course¹.

The wider backdrop in the quarter included inflation reaching seven per cent, described as the highest rate of CPI in the UK since 1992, and two increases in Bank Rate during Q1, with a subsequent rise to one per cent, the highest since 2009¹. The review notes that the energy price cap rose by over 50 per cent a month after March, when four in ten of those paying energy bills said it was somewhat or very difficult to afford them¹. It reports that 37 per cent of renters said it was difficult to pay their usual household bills, compared with 23 per cent of mortgage holders¹.

Why it matters for households

The change affects homeowners who remortgage and release equity, particularly those who used that money towards buying an additional property while the temporary tax break was in place. The review's finding is that this route to funding a purchase has returned to the pattern seen before 2020, while releasing equity for home improvement has not fallen back in the same way¹. The rules on Stamp Duty higher rates on second homes and additional properties and on Stamp Duty Land Tax in England and Northern Ireland set the tax position for additional purchases; the review does not set out the rates themselves.

The review also sets out expectations for the rest of 2022. It says cost-of-living pressures are expected to bear down on effective demand for mortgages this year, particularly among lower-income households, but are unlikely to show materially until the second quarter¹. It expects increases in unsecured debt stress and mortgage arrears as those pressures are felt, again most acutely among lower-income households, which it says have less flex in their budgets¹. It notes that cost-of-living pressures had so far not fed through to signs of early stress in unsecured borrowing, and that mortgage arrears continued to improve¹.

What happens next

The review says further Bank Rate rises are not out of the question, noting that the minutes of the latest Monetary Policy Report state further tightening may be warranted, with a third of the committee already voting for a larger rise¹. It reports that NIESR forecasts annual GDP growth of 3.5 per cent, CPI inflation of 7.8 per cent and an average unemployment rate of 4.4 per cent for the year as a whole¹. No further dates for equity withdrawal data are given in the review.