The chancellor Kwasi Kwarteng announced plans to cut stamp duty in the government’s mini-budget today in order to aid economic growth. The cut in stamp duty is intended to allow more people to move homes and provide first-time buyers with a better chance to get on the property market.
The cut raised the threshold of how much a property has to cost before paying stamp duty to 250,000, doubling from the previous 125,000. Also introducing a measure of first-time buyers paying no stamp duty on the first £420,000, and the value of the property which first-time buyers can claim relief from £500,000 to £625,000 – the steps taken mean that 200,000 people will be taken out of paying stamp duty altogether
Properties in the UK are now more unaffordable than ever, with figures released by the ONS showing that the average home sold in England cost the equivalent of 8.7 times the average annual disposable income – which is the worst affordability ratio in England since records began in 1999. For many Brits, getting onto the property ladder is now an unachievable dream. The industry has been suffering in the past few years with a severe undersupply of housing – which has pushed average house prices to a record £294,260 according to recent statistics from Halifax. The UK property market has been buoyant since last year – with house price growth showing an extraordinary 11.8% annual rise in 2021. This rise can be attributed, predominantly, to the stamp duty holiday. This was a tax break introduced in the UK during the peak of the coronavirus pandemic in July 2020, which scrapped the transfer tax on the first £500,000 of a home sale with savings of up to £15,000 available to buyers.
David Hannah, Group Chairman of Cornerstone Tax provides some expert insight: “We all know the challenges facing Liz Truss regarding UK’s property market – inflation and rising interest rates are causing a whole raft of issues. We’ve seen a surge in building costs and building materials which is slowing down construction. At the same time, the affordability of mortgages has worsened and that’s going to impact first-time buyers, but also anybody on a variable rate mortgage. Finally, it will inevitably lead to a slowdown in construction which will exacerbate the under-supply of UK property. So, whilst prices might flatten and the rate of growth may slow, I don’t expect property prices to fall.
“The cut in stamp duty announced today hopes to provide first-time buyers with a better chance to get on the property market. With properties in the UK standing at the most unaffordable levels ever, anything which eases the ability to buy first homes is welcomed. Stamp duty is something which can delay the process of buying a house and add extra unforeseen costs.
“The cut raises the threshold of how much a property has to cost before paying stamp duty to £250,000, doubling from the previous £125,000. First time buyers previously paid no stamp duty on the first £300,000 which was also increased to £420,000, and the value of the property which first-time buyers can claim relief from £500,000 to £625,000 – the steps taken mean that 200,000 people will be taken out of paying stamp duty altogether.
“With figures released earlier this year from Zoopla showing more homes have been pushed into the higher stamp duty bracket, the need for the brackets to be increased in line with inflation is evident. The mini-budget also announced plans to provide more available space for properties to be built – a move to combat the unbalanced supply and demand level in the UK property market. “
Simon Bath, CEO of iPlace Global, also comments on the stamp duty cut, stating: “Whilst a stamp duty cut could stimulate the housing market further – like the stamp duty holiday did last year – this could push house prices up even more at a time when there are such low levels of stock. This means that borrowers could be paying higher mortgage bills, when soaring costs are already severely impacting millions of people across Britain.
“First-time buyers are likely to be affected the most from today’s announcement, especially as property and mortgage prices continue to soar. Many of these people will be looking to purchase their first home, and although the market could see a slowdown towards the end of the year as demand continues to wean and stock numbers slowly begin to recover, their chances have continued to dwindle due to high competition and rising mortgage prices.
“The chancellors announcement to build more homes across the country is welcome news for the market. However, the government must ensure that support is given to all ends of the spectrum – from those looking to buy their first home, to those struggling with mortgage repayments. New schemes must be introduced to replace old ones like Help to Buy, especially for those who can’t afford the opportunity to step onto the ladder.”
Jatin Ondhia, CEO, Shojin says: “The property market is undoubtedly integral to the UK economy, and its value extends far beyond SDLT tax receipts for the Government, given what it means for developers, investors, agents and service providers. Once again, as turbulence has struck, the Government has reacted quickly to support the market, just as they did with the Covid-19 stamp duty holiday.
“It will be interesting to see what impact this has from an investment perspective. For instance, we have seen retail investors deterred from buy-to-let purchases due to higher tax bills, but will this SDLT cut offer enough incentive to reverse that trend? I am not sure – the complexity and high cost of traditional property investment continues to alienate many, so we could see more people go down alternate routes, like fractional investing in real estate.”
Paresh Raja, CEO, Market Financial Solutions comments: “One of Whitehall’s worst kept secrets this week, the confirmation of the stamp duty cut, is nonetheless significant. Like Johnson and Sunak’s actions during the pandemic, today’s mini budget underlines the new-look Government’s determination to maintain a buoyant property market.
“But the true impact of this move remains to be seen. One common theme of the stamp duty holiday in 2020-21 was that sellers inflated asking prices to account for buyers’ stamp duty savings. Will we see the same again? It is likely, to an extent at least. But this time around we have rising interest rates impacting the amount buyers can borrow, so that will also shape the way that house prices move.”
“I think more action should have been taken to incentivise developers, investors and homeowners to improve properties’ sustainability. Buyers and renters want greener homes, while the energy price crisis has demonstrated the need to improve how energy efficient buildings are. So, further financial incentives to encourage owners to lower the carbon footprint of their property would have made perfect sense at this time. We should expect this to be a recurring theme in the months to come.”
Finally, Iain McKenzie, CEO of The Guild of Property Professionals, states: “Rising inflation, interest rate hikes and the cost-of-living crisis have taken their toll on the economy and the new chancellor is betting on tax cuts to stimulate growth.
“This mini-Budget comes after the Bank of England announced that Britain was now in recession, so the Government has once again turned to the housing market to become a catalyst for economic growth.
“The cut to Stamp Duty announced today will be welcomed by people currently buying a house, but this will not solve the wider issue of affordability in the property market.
“As we saw during the pandemic, when you create incentives to buy, you see demand soar. As demand increases, the number of available properties falls, pushing house prices up. An increase in demand now would come at a time when the supply of housing is already low, with house prices already inflated beyond the budgets of many buyers.
“The housing market is intrinsically tied to the health of the economy. Home-movers spend an average of £12 billion a year on home-related purchases such as furnishings and renovation. Moving can benefit other aspects of the economy, so it is good to see action taken to energise the property market.
“The Government needs to address the issue of housing supply by making home-building a priority. The review on planning systems for infrastructure announced today could go some way towards easing the supply issue, but it relies on the Chancellor’s pledge to ‘get Britain building’.”