Stamp duty holiday tempted buyers into ‘marathon’ loans

Thousands of borrowers took out mortgages lasting 35 years or more during the government’s stamp duty holiday in an attempt to keep up with rising prices.

There was a surge in borrowing across the board, and figures show that despite record low interest rates, the number of people taking “marathon mortgages” also increased.

As the first phase of the stamp duty holiday drew to a close in England, 35,046 mortgages with a term of 35 years or more were sold in June 2021. In September, as the second phase came to an end, another 28,112 were sold.

The figures, obtained by wealth management firm Quilter under the Freedom of Information Act from the Financial Conduct Authority, showed a huge jump in the June figures, although that was from a period just after lockdown restrictions on the housing market were eased.

The September figures showed a 75% year-on-year increase in long-term home loans.

Quilter says this suggests borrowers were taking the opportunity during the stamp duty holiday to buy larger and more expensive homes, stretching repayments over a longer term in order to make them affordable.

The £3.8bn stamp duty holiday was announced by chancellor Rishi Sunak in July 2020 to ward off a collapse in the housing market during the first Covid lockdown.

Until the end of June 2021, the first £500,000 spent on a property in England and Northern Ireland was tax free, which meant a saving of up to £15,000.

Scotland and Wales had different stamp duty holidays which ended in June 2021.

In England, the tax break was scaled down, with the threshold at which the tax on property purchases begins falling to £250,000 to the end of September 2021. The so-called “nil rate band” returned to its pre-pandemic level of £125,000 on 1 October.

Charlotte Nixon, from Quilter, says people who take out the longer-term mortgages will pay more interest in order to spread the loan.

She says: “Those who purchased for the average house price in June and September 2021, saved £3,283 and £2,499 on stamp duty respectively. But to take advantage of this saving, many had to opt for a longer term to ensure it was affordable.”

“However, had they held off until they could afford a standard length mortgage, they could well have saved themselves a lot more money in the long run than just the stamp duty savings.”

The policy has been described as a “reckless move” by Generation Rent, a lobby group for private renters. Deputy director Dan Wilson Craw says: “Not only did it hand billions of pounds to the already wealthy through higher house prices, but thousands of households have exposed themselves to huge risk by taking out mortgages they could still be paying off in retirement, in order to compete with other buyers.”

The Quilter figures show there were increases of more than 300% in mortgages taken out across the board, from 20- 25-year terms up to 35-40-year terms.

Nixon says the additional cost of taking on a longer-term mortgage may have been an “afterthought” for those rushing to meet the stamp duty deadlines.