Stamp Duty cuts have always been a popular way to appeal to the mass market. Politicians know that people resent paying the large sums on top of the
cost of their move, and so the cut announced by
Rishi Sunak during the pandemic had a huge impact on ‘getting the market moving’. The problem? Property prices skyrocketed in response, because suddenly buyers had money that they would have spent on Stamp Duty to add to their purchase price. But also, as buyers keen to make a saving rushed the market, the dial swung firmly into the seller’s market.
What’s happened to property prices since?
They didn’t drop as expected, but growth has slowed. Our data shows that house prices have increased by 10.2% since September 2021 when the Stamp Duty Holiday ended. They rose by 4.1% between February and March, staying the same until May. Prices did rise again by 3.7% in July but then fell in August.
The property market has started to stall a little in recent months, but that’s not a huge surprise with awareness around the cost of living, the interest rate increase making mortgages more unaffordable and general worries about the upcoming ‘winter of discontent’. Lots of property prices remain high, with a lot of competition, but this is likely to be people who need to move, either because of the ‘three Ds’ (death, debt, divorce) or upsizing to accommodate family/working from home needs.
What is the new Stamp Duty cut?
The cut, announced on 23
rd September 2022 by Kwasi Kwarteng in a ‘mini-budget’ by new PM Liz Truss, raised the Stamp Duty exemption from £125,000 to £250,000. There was also an increase in the First Time Buyer discount, increasing that exemption from £300,000 to £425,000, with a discounted payment on properties up to the value of £625,000.
Who does this new Stamp Duty cut help?
Truss made clear during her leadership bid that she wanted to help First Time Buyers, particularly helping renters become owners by making it easier to prove they could pay a mortgage. However, whilst there is a significant jump in the Stamp Duty exemption for First Time Buyers, it’s hard to see how it will help.
London FTBs come out on top
Our data shows that the average cost of a First Time Buyer property in England is just under £250,000. Even in London, with higher prices, FTBs spend an average of £415,000 on their first home. Due to the higher property prices in London and the South East, our data approximates that 75% of FTBs buying in this area would now benefit from paying no Stamp Duty. The average London First Time Buyer will save approximately £5750. But what about the rest of the country? With the average house price in the North East at £186,000, this increase will have very little impact on big areas of the country.
Affordability
With Truss’ concern around mortgage affordability, let’s look at getting a mortgage on properties of £425,000. Assuming a 10% deposit (£42,500) and applying the 4.5x mortgage rule (you can usually borrow 4.5 times your annual income) these First Time Buyers would need a mortgage of £382,500. This would require a £85,000 annual income. According to the HMRC, the average wage in the UK is currently £24,600 and based on a survey, the average wage in London is £73,852 – though this average is skewed by very large wages in the city).
To make use of the £625,000 top cap, a First Time Buyer would need to make around £125,000 a year. With an income at that level, some may argue that those people are already on the property ladder, or don’t need the support.
Shadow Chancellor Rachel Reeves said in response to the Stamp Duty announcement: "Last time the government did it, a third of the people who benefited bought a second home or a buy to let property.’
Our data shows that the proportion of people buying a second home or buy to let property did increase by 21.31% during the previous Stamp Duty cut.
What will this mean for the property market?
Usually, a cut of this nature would see a boom to the property market, which seems to be what the government are hoping for. But with a very busy market last year, higher property prices and an increase in interest rates on mortgages (as well as some
mortgage products being pulled), it’s unlikely this will have the desired impact. For those mortgage-free buyers, or those who have significant equity in their homes and are looking to upsize, this Stamp Duty reduction may be welcome news. For many First Time Buyers however, property prices and mortgage availability are going to be bigger concerns.
What do the experts say?
Property expert, Kate Faulkner of
Property Checklists says:
“It seems to be a good move. The fact that it’s permanent and there’s no cliff edge will be welcome news to conveyancers and the industry overall. The SDLT saving may go a way to mitigating the increase in mortgage interest rates."
Rob Houghton, CEO of reallymoving:
“These measures will help First Time Buyer share recover in the short term, but my fear is it will continue to fuel rampant house price inflation and, with borrowing costs only heading one way, home ownership will become more unaffordable over the longer term.
“Targeted incentives such as tax cuts for the most energy-efficient homes, or for particular buyer groups such as downsizers could have been very effective. Today’s announcement will help encourage downsizers but scrapping the tax altogether for this group would be the simplest and most cost-effective way of freeing up the housing market, incentivising older people to move into more suitable homes and reducing competition among families for larger homes.”
Henry Pryor, property buyer:
‘The house prices are going to be buoyed up by this, they’ll obviously be dragged down as a result of the bank of England’s announcement yesterday on mortgage rates, it’s not going to help first time buyers - First Time Buyers in London will be an average of £7000 better off, so that’s good but it’s a small proportion of First Time Buyers.’