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Flipping Properties during Stamp Duty Holiday
The idea of ‘flipping property’ is when a property is bought and sold within 12 months. The buyer is flipping it over so to speak. It’s a strategy used often by investors to give them a quick cash return – that they may then use as deposits for further properties.
Over the years of filming Homes Under The Hammer I’ve met hundreds of people who have bought a run down property at auction with the intention of flipping it to make a quick profit, and back in the days when I started on the show, it was possible to do this in as little as 6 months provided you pulled your finger out and knew what you were doing. Nowadays, mortgage lenders are sceptical about borrowers taking out loans for such a short period of time and take a dim view on this practise – I guess from their point of view they have the costs and administration associated with setting up a mortgage with the expectation that they are going to have a customer for years – so they have banned flips for anything less than 12 months.
That’s not to say the practise doesn’t still go on – it’s just the timescales for a flip are now that bit longer. Indeed, according to data from the Land Registry and Hamptons International, 2020 is set to see the highest percentage of homes bought and sold within 12 months since 2008.
And here’s another interesting fact: The average profit in 2020 from flipped homes in England and Wales is £40,995 an increase from £29,685 in 2019. Now this increase may be partly due to the fact that this year investors have sought out houses over flats in response to the demand from buyers wanting larger properties with outside spaces and more suitable for the new way of working for thousands of office workers.
According to the Land Registry and Hamptons, the percentage of flats being flipped reduced from 20% in 2019 to 5% now.
There have been people I’ve spoken to that suggest that Flipping is a bit of a dirty word…there being something unsavoury about making a quick profit, but as Aneisha Beveridge, head of research at Hamptons International, said: “Flippers play an important role in the housing market by improving housing stock and taking on projects other buyers often won’t touch.”
“Since the market weakened following the financial crash of 2007, the number of flipped houses dwindled. However, in recent times their numbers have started to recover.
The introduction of the additional 3% stamp duty in April 2016 on investment homes meant that flippers, over the more recent years have gone for cheaper properties that fall under the Stamp Duty (SDLT) threshold – or only qualify in the first tier to save themselves thousands on upfront costs. But obviously the Stamp Duty Holiday we’re enjoying in the later part of 2020 has removed this factor – so investors can flip the bigger homes again. Not surprisingly we’ve seen record levels of activity since the government announced the Stamp Duty holiday, but it’s worth saying that part of this new found buoyancy is created by not only owner occupiers wanting to make lifestyle improvements, but also Investor Flippers who are cashing in on the tax savings they can make.
But the clock is ticking… the Stamp Duty Holiday comes to an end in March 2021.
The ideal scenario is to buy and sell again before this deadline – being able to offer your newly refurbished property for sale without your buyer having to fork out thousands on SDLT means you can appeal to a wider audience and with pundits generally predicting that the market will slow radically at this time, who knows if your buyers will even be there. Remember that the furlough scheme also comes to and end at the same time, which will mean more uncertainty for households. Basically a bit of a ‘Cluster Mess’.
Right now mortgage companies are being overwhelmed by the levels of activity they are currently enduring and this is slowing the process of buying a property down. Lenders can vary between 10 up to 26 weeks to complete a mortgage due to levels of demand and backlogs from the first lockdown, so is there still time to buy now and still flip before the end of March deadline?
As you might expect, here’s when I can make an unashamed plug for buying at auction! All the usual auctions that we feature in Homes Under The Hammer have moved online…so you could argue that it’s made even easier to take part as you don’t have to attend the venue in person and get all jittery at the size of the room and how packed it is. Auctions have always been rich picking grounds for properties in need of renovation and those which normal buyers wouldn’t touch with a barge pole: ideal Flipping material. They often have no chain involved, and the timescale from auction to completion is usually just 28 days so are much quicker to complete.
Those investors wanting or needing to use finance to buy a new property should be aware of the time it could take to complete using a mortgage and often due to the nature of auction properties, isn’t always an ideal route anyway. Alternatives that could be quicker include:
• A remortgage of an existing property that is usually around six weeks for cases with no complications
• A secured loan on an existing property
• A bridging loan where completion times are fast, but rates may be higher.
But whatever route, get your skates on now, organise your finances before the auction and you’re in with a chance.