Chancellor Kwasi Kwarteng unveiled the government’s mini Budget on Friday (23rd September) with many measures being announced relevant to the property industry.
Arguably, the biggest of them all was the Stamp Duty cut, which is expected to remove 200,000 people from having to pay Stamp Duty when purchasing a new home. The threshold for first-time buyers has been increased from £300,000 to £425,000.The chancellor also increased the value of the property on which first-time buyers can claim Stamp Duty relief from £500,000 to £625,000. Spring’s CEO, Cormac Henderson, comments: “We have long been calling for a Stamp Duty break for elderly downsizers or ‘last time buyers’, who feel stuck in unfit for purpose accommodation, so the announcement of a general Stamp Duty break is welcome news in this regard, incentivising hundreds of thousands of people to downsize and free up larger homes for those who need it most. However, ultimately our housing market has a fundamental supply-demand issue and until more homes are built at scale, the Stamp Duty cut will simply fuel more demand with more people fighting for less homes. As a consequence, we should see prices holding up in the near term, despite rising interest rates, cost of living challenges and growing mortgage payments. The government is walking a delicate line, in my view this policy is quite a gamble. The Stamp Duty cut incentive could lead to a cliff-edge scenario in the medium to long term. The key question is whether it can hold the market in check until the economy returns to growth and rates stabilise or fall from their peak. However, the tax incentive could well be phased out and avoid a crash scenario as wages, inflation, and mortgage payments stabilise. There is a scenario where the economy may not sufficiently recover, and inflation isn’t controlled. If interest rates keep rising and more people progress onto a standard variable mortgage, the result will be a growing number of unsustainable mortgage payments. If property prices fall simultaneously, negative equity or loan to value challenges could start to accelerate a negative picture. It could be that today’s announcement is the first step that ultimately leads to a market correction, the likes of which we have not seen since 2008.”
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