Homebuyers in England were scrambling to get deals over the line to capitalise on a government tax break that is set to be wound down over the coming months from Thursday.

The stamp duty holiday was introduced by the Treasury in July last year, as the country emerged from its first national coronavirus lockdown. It was designed as a stimulus for a housing market, which had effectively stopped dead between March and May when the government’s stay-at-home order was in full force. But instead the measure has been criticised for helping to fuel a house price boom.

The stimulus is seen as one cause of rampant inflation in the market, with prices nationwide rising at their fastest rate in almost two decades. And there have been concerns that its withdrawal will pop the bubble and send the market into reverse.

The change at the start of July will see the threshold above which stamp duty is paid fall from the first £500,000 of any home purchase to £250,000, cutting the potential saving for homebuyers in England and Northern Ireland from £15,000 to £2,500. On October 1, the tax break will be phased out entirely.

Residential property analysts expect some impact as the stimulus is wound down and then scrapped but argue that the shift in underlying housing preferences during the pandemic was likely to soften any downward pressures.

Line chart of Annual change in average property price (%)  showing Annual house price growth accelerates after stamp duty holiday

These include families cooped up in cramped accommodation in big cities during the various lockdowns moving out to find more room. Extra space is also a driver for those people expecting to continue to work from home at least some of the time when offices reopen.

Around the world, lockdowns have allowed wealthier households in secure employment to save and been a trigger for people to re-evaluate their housing needs, prompting surging housing demand from Sweden to South Korea.

“It’s people who have been stuck at home for the last year thinking ‘we’ve had a bit of price growth and mortgage rates are low, now I want a bit more space outside the city’,” said Neal Hudson, at market research company Residential Analysts.

He said the stamp duty tax break was just one of the reasons behind the increase in demand since May 2020.

“Pent up demand [from the first lockdown] is what got things going over [last] summer, even before stamp duty holiday was announced. Stamp duty was a bigger factor in the autumn. But since then the race for space is by far the biggest driver,” he said.

Richard Donnell, Zoopla research director, said he expected a “lull” when the holiday was fully withdrawn in October. “Stamp duty holidays always bring forward sales,” he said.

But the reduction of the discount threshold to £250,000 from June 30 would still stimulate sales in the regions with lower average house prices, he added. “Half of all sales in a year are under £250,000. I think the market outside the South of England, particularly in the Midlands and the North, will probably stay strong into the summer and then fade into the autumn.”

In England, house price growth has been fastest in areas that have gained the least from the stamp duty holiday. Map of England showing annual change in average property price, April 2021 (%). The North East reported a 16.9% increase but only an average saving of £380 on stamp duty. Contrasted with London which only reported a 3.3% increase in house prices but a £14,584* stamp duty saving. *Based on a non-first time buyer, buying a primary residence.

The withdrawal of the stimulus is unlikely to lead to a collapse in sales in part because the pandemic has accelerated a “generational shift in housing”, Donnell said. “In the last 15 to 20 years house moves have been made by young people getting on the ladder then moving through. Now it’s much more driven by older people. Stamp duty is a bonus for them but it’s not the only thing.”

Zoopla analysis shows the housing market increasingly being driven by growing families and older people with considerable housing wealth, while first-time buyers and those on tighter budgets are more likely to have been economically hit by the pandemic and are locked out by stricter mortgage criteria.

“There are a lot of people who have high levels of housing equity and no mortgage — people who have been effectively dormant in the market in recent years — and more of those people are going to want to do something. Because they have no mortgage, they will just pay whatever stamp duty there is,” said Donnell.

And even with the stamp duty saving, buyers this June are likely to be paying more for a property than they would have been 12 months ago. According to Nationwide Building Society, average UK house prices grew 13.4 per cent in the 12 months to June, the fastest rate in 17 years.

Line chart of Share of transactions by mortgaged buyer type (%)  showing Coronavirus shifts the mix of buyers in the UK

Data from Zoopla, based on offers made in May, found that house price growth had exceeded the average savings from the stamp duty holiday in all areas of the country with the exception of London, where price growth has been weakest.

In the East Midlands, the North West and Yorkshire and the Humber, for instance, the average stamp duty saving on a £500,000-plus home was 2.3 per cent or £15,000. However, prices in that value range have risen by about £25,000 in those regions since July 2020, Zoopla found.

But before they start to worry about any impact on the market from the winding down of the tax break, estate agents, conveyancers and removal companies were having to contend with a flood of buyers looking to beat the Thursday deadline.

Rob Hailstone, founder of Bold Legal Group, a network of conveyancing solicitors, said some buyers had put their furniture in temporary storage, having failed to book removal firms. He said he had heard of examples of some “agitated” clients even asking their conveyancer to exchange contracts before they had received their mortgage offer.

Hailstone said there was a risk that transactions would collapse if the deadline were not met. “I expect many agents are already talking to buyers and sellers about a possible renegotiation.”