The government has announced a cut to stamp duty, raising the threshold at which the tax is applied to £250,000 from its current level of £125,000.
Also, as the BBC reported, the threshold for first-time buyers has been increased from £300,000 to £425,000.
The changes should prevent 200,000 people from having to pay stamp duty, according to Chancellor Kwasi Kwarteng.
As PBC Today noted, under plans by the previous prime minister, Boris Johnson, stamp duty tax was set to be increased from 19% to 25% in April 2023. However, current PM Liz Truss and her government have reversed these plans.
The new rules only apply in England and Northern Ireland (where Advantage has a recently opened office).
Stimulating demand without increasing housing supply
PBC Today quoted Stuart Law, CEO of the Assetz Group, who said: “An SDLT cut will undoubtedly support many first-time buyers and buyers on lower incomes, granting more people access to the housing ladder by offsetting increasing mortgage rates and rising house prices. But, an SDLT cut is going to stimulate demand further at a time when it is already vastly outstripping supply and that’s only going to send prices one way.”
It has been noted by a number of commentators that the government’s mini budget, featuring tax cuts funded by borrowing, will inevitably lead to the Bank of England raising interest rates more swiftly than they otherwise would have in a bid to control inflation (with some suggesting that rates may be raised as early as next week).
Rising interest rates could eclipse the benefit of the stamp duty cut
Tom Bill of Knight Frank was quoted by Country Life stating: “Just when you think housing demand is cooling, along comes another stamp duty cut. Together with other measures designed to boost the economy, a cut will intensify and prolong demand in the housing market. However, what the Chancellor is giving away, the Bank of England will more than take away. Many buyers will find the impact of rising mortgage rates soon eclipses the benefit of a stamp duty cut, which will keep firm downwards pressure on prices next year.
“The cost of a five-year fixed-rate mortgage has almost tripled over the last year and this upwards trajectory will continue. Almost four million first-time buyer mortgages have been issued since 2009, which is a large group of homeowners who don’t know what it’s like when monthly interest payments rise meaningfully. The gravitational forces of higher rates will bring house prices back down to earth irrespective of any stamp duty cut.”
Advantage’s view: Back in March 2021, when the previous stamp duty holiday was extended, we wrote: “Confirmation of the stamp duty extension will be welcome news for those who are already home-owners, or are preparing to buy a home.” This time round, although the tax cut will be welcomed by prospective buyers, they may well be getting their calculators out this evening and offsetting the upfront savings against the cost of higher mortgage payments.