Home buyers have turned to lesser-known forms of borrowing, at sky-high interest rates, to ensure their property purchases complete before the stamp duty deadline.
Buyers could be left with a £15,000 tax bill if their transaction does not conclude before March 31. However, as banks, solicitors and surveyors struggle to cope with demand, there are fears that thousands of people may miss the cut-off date.
Some are turning to unusual forms of finance in a last-gasp bid to beat the deadline. Bridging finance differs from a normal mortgage because it can be arranged in a matter of days. The cost of borrowing is much higher, so it is rarely recommended for ordinary house purchases. However, the prospect of saving £15,000 in tax has suddenly turned bridging into a mainstream solution.
Bridging can look cheap at first glance, as quoted rates are between 0.7pc and 1.25pc, but these are monthly rates, so the annual cost is between 8.7pc and 16.1pc. An arrangement fee of 2pc is also payable, although it can be added to the loan to minimise the impact.
These costs make bridging loans much more expensive than high street mortgages and personal loans, although they are expected to be held only for a matter of weeks before the loan is refinanced to a mainstream lender.
Simon Banisi, 67, owns a portfolio of buy-to-let properties. He turned to bridging finance to buy a new property that was being sold for £50,000 below the market rate.
Mr Banisi, from Milton Keynes, owns 38 buy-to-let homes and his complex portfolio means that loan applications can take much longer to process. The current delays in the house buying process meant he had no realistic chance of completing before the stamp duty deadline.
Mr Banisi borrowed £250,000, including fees, to buy the home at a rate of 0.7pc a month – equivalent to 8.7pc a year. Although he is paying £1,764 a month in interest, he has saved £50,000 on the price and will save £2,500 in stamp duty.
“Had I approached a high street lender, it would have taken far too long and I’d have missed out on the cheap property and stamp duty savings,” he said. “The plan is to refinance straight away to a longer-term loan with a lower rate elsewhere.”
Peter Williams of Propp, a specialist property finance broker, said he was seeing more interest from residential buyers who wanted to get the stamp duty break.
“Clients want to make sure they complete their transaction,” he said. “Most of the uncertainty we are seeing in the market is caused by the huge backlogs with local authority searches. Many solicitors are already saying April is the earliest they can do.”
Lenka Pajkošová of MT Finance, a bridging lender, said borrowers could make an application and receive funds within two weeks, potentially offering a lifeline to home buyers who risk seeing their property chain collapse.
“Turnaround times on standard mortgages are many weeks because everything is so disjointed with people working from home,” she said. “Chains are elongated because if you have three, four or five people in a chain, all with a mortgage, they will all be experiencing delays.”
However, Amadeus Wilson of SPF Short Term Finance, a broker, said the cost of bridging meant it was suitable only for high-value transactions where the stamp duty saving would cover the additional borrowing costs.
He urged borrowers to investigate other options, such as a mortgage from a lender that is suffering fewer delays. “There is a cost with bridging and you would not choose to do it unless you had to,” he said.
The Telegraph has launched a Stamp Out the Duty campaign against ending the cut on March 31. The economic uncertainty the country faces has led to fears that the property market will suffer a dramatic slump in activity if the tax break ends.
Hamptons International, the estate agent, has said extending the deadline could result in an additional 100,000 transactions in 2021, equivalent to a 10pc boost in activity.
Others have argued that the rules should be tweaked to allow purchases that complete shortly after March 31 to qualify for the tax break. This small change could save thousands of sales from collapse. A petition calling on the Government to extend the stamp duty holiday now has 100,000 signatures.