ShowHouse: Stamp Duty cut announced as part of mini budget

As featured in ShowHouse 23rd September 2022 by Rory Wilkinson

Stamp Duty cut announced as part of mini budget

A mini budget announced today by Chancellor Kwasi Kwarteng has confirmed that Stamp Duty will be cut, along with a number of other measures to help tackle the cost of living crisis.

Kwarteng’s plan includes doubling the nil rate band from £125,000 to £250,000, with an estimated 200,000 more people each year being able to buy without paying any Stamp Duty. The Government will provide extra support for first-time buyers, who will pay no Stamp Duty up to £425,000. The cut comes into effect from today, with Kwarteng announcing that it will be permanent.

The Chancellor also announced that the Government would be creating new ‘investment zones’, with discussions underway in around 40 areas across England. This will result in liberalised planning rules, reduced regulation and tax incentives, including no stamp duty on land purchases for residential use.

Nick Sanderson, CEO of Audley Group, said: “A stamp duty cut is a tried and tested way to get the housing market moving, but it is a short-term fix for a housing market that has major flaws. The blanket reduction will only succeed in stimulating some parts of the market and ignores the desperate need for more targeted measures and increasing supply in areas of the housing system which are chronically underserved. This is where successive governments have fallen short and why the housing market doesn’t function as it should. The blinkered focus on first-time buyers largely neglects homeowners considering downsizing or moving into housing with care and this is an area that could have a significant impact on the whole market. Liz Truss and her Government have an opportunity to make a mark on the housing market, but it seems it will pass as another opportunity missed.”

Andy Sommerville, director at property data and insight firm Search Acumen, said: “We saw what the Stamp Duty holiday did to the market during the pandemic, and I have no doubt this move will stimulate demand again. I don’t think market activity will reach anywhere near the same dramatic peaks as it did in 2021, not least because available housing stock is extremely low, which puts a natural cap on how far transaction volumes can rise. But, without supply-side reforms to boost housing stock, stimulating demand will mean more buyers bidding for the same number of properties, which can only mean one thing for house prices.”

“While many buyers who might have given up on homeownership will be buoyed by an SDLT cut, we need to be careful that stimulating demand, unchecked by measures to boost housing stock, doesn’t create an affordability crisis of runaway house prices, immediately following one of the most incredible periods of price growth in modern history. We also need to be careful that buyers who take advantage now, don’t find their housing costs become unaffordable in years to come. Interest rates historically have averaged more than 4% and we’re expecting another rate rise from the Bank of England tomorrow, so buyers do need to be aware that savings they make today through SDLT may be cancelled out through elevated mortgage repayments in years to come due to elevated house prices and borrowing rate rises.”

Matthew Pratt, CEO of Redrow, said: “If we want a housing market that works for everyone, we need people to be able to move both up and down the ladder.”

“In its current form, stamp duty eats into people’s deposits, impacting affordability and ultimately penalising those looking to relocate for work or wanting to downsize as part of retirement plans. Stamp duty needs to be reformed to help the housing market work more effectively and to stimulate more transactions, which will in itself drive tax generation throughout the homebuying supply chain of estate agents, solicitors, removals, furnishings etc.

“Whilst we welcome today’s change, we would encourage the Government to consider further steps to reduce the stamp duty burden by reducing the tax bands across all levels, and introducing a lower, flat rate of tax for all homes.”

Cormac Henderson, CEO of national home buying service Spring, commented: “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 fewer 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.”

Dominic Agace, chief executive of leading estate agents Winkworth, said: “At a time when the BOE has announced we are already in recession, it is welcome to have a promptly presented agenda for growth.

“Some big and welcome changes initiated with a long overdue reduction of the extremely negative stamp duty, which hopefully now will allow a better functioning housing ladder. It is vital we get new buyers on the ladder.”

“Other initiatives to encourage investment in special zones are also welcome and can help much-needed regeneration to these areas, creating better local environments and higher quality housing stock for people to enjoy.”

“It’s important we invest in the UK to make it retain its international status and appeal. Measures encouraging businesses to set up in the UK and, in particular, London which was most affected by the Brexit vote bode well for the long-term outlook. Even the controversial review of bankers has to be seen in the light of attracting global talent against the competition of New York, and reap the benefits of innovation and growth they can generate.”

“It has got to the point with the highest tax take in 70 years that our beloved public services have to be paid for and with no room for more taxes growth appears our best bet to ensure we can continue to support them.”

Daryl Perry, head of research & insight at Cushman & Wakefield, commented: “The stamp duty changes announced today are likely to support house prices, although much will depend on to what extent mortgage rate increases will undermine this support.”

“Ultimately, the changes are not going to help solve fundamental affordability issues. If anything, they are going to be made worse in the long term. A measure to change the systemic issues is needed to push housing market reform and increase supply in both the owned and rented markets, and not just stimulate an already overheated market.”

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