Britain’s usually manic property market came to a virtual halt in the days leading up to Chancellor Kwasi Kwarteng’s mini-budget.
Deals were suspended, real estate agents’ phones stopped ringing and desperate sellers didn’t lower prices to attract buyers.
Rumors that the Government was about to launch a stamp duty holiday had been circulating for days. And no one wanted to risk missing out by taking a wrong step.
But when the Chancellor finally unveiled plans to permanently cut stamp duty, industry insiders say there was a sense of anticlimax.
Tax cut: The government has doubled the threshold at which it starts paying stamp duty from £125,000 to £250,000. It will save a typical household £2,500
“It’s not going to have much of an impact, a lot of people expected something more,” says London-based estate agent Christian Warman of Tedworth Property.
Jo Ashby, of Cornish agency John Bray, adds: “It certainly wasn’t a no-phone situation.”
Historically, stamp duty cuts have poured gasoline on the housing market and encouraged families to move out en masse.
When former Foreign Minister Rishi Sunak removed the tax on all property worth up to £500,000 at the height of the pandemic in 2020, house prices soared almost overnight, and many have continued to rise even further. plus.
But now, despite initial signs of increased activity, with traffic to real estate website Rightmove rising 10 percent in the hour after the announcement, agents and brokers say the reaction has been tepid.
And within days it was overshadowed by the news of rising mortgage rates, causing some panicked analysts to predict a drop in house prices of as much as 40 percent.
So has the chancellor done enough to prop up the market?
Who is in line to benefit?
Last week’s tax cut is less generous than that of Kwarteng’s predecessor, Rishi Sunak.
The Government has doubled the threshold at which stamp duty begins to be paid, from £125,000 to £250,000, while Sunak increased it to £500,000. Mr Kwarteng’s plan will save a typical household £2,500.
First-time buyers will benefit the most, as they will no longer have to pay tax on homes worth up to £425,000, an increase from the previous £300,000.
This could save them up to £6,250. However, it will disproportionately benefit those who buy in areas where property prices are higher, such as London; in the north, for example, first-time buyers are less likely to purchase homes worth more than £300,000.
Joel Edgerton, of Wigan estate agency Regan & Hallworth, says: “Buyers were saving up to £12,500 over the last stamp duty holiday.
“This time around, the incentive isn’t as great for anyone who isn’t a first-time buyer.”
Second homeowners pay the standard rate plus a 3 percent surcharge in each band.
The cut does not apply in Scotland, which has a slightly different levy called the Land and Building Transactions Tax (LBTT). This amounts to between 2 percent and 12 percent, depending on the value of the property.
First time buyers in Scotland do not pay LBTT on properties worth up to £175,000.
Buying a house right now ‘feels more like a gamble’
Charlotte Dale, a mother of two, can save £2,500 in stamp duty on her recently bought house in Richmond, south-west London.
However, this is not enough to offset the higher mortgage you will have.
Real estate deal fell through: Charlotte Dale, with her young family
Charlotte, 34, a journalist who is buying with her partner, says: “We were ready to buy a property six months ago, but negotiations fell through.
“Everyone was saying that there was going to be a drop in house prices, so we thought it was better to wait. But now we’re kicking ourselves a bit.
‘My broker said our mortgage is going to be much worse than it would have been six months ago, but the best it will be in at least two years.
‘So although we are saving a bit on stamp duty, we will pay more in the long run.
‘Buying a house on the spot feels like a gamble.’
More gazumping tales?
Critics claim that the previous stamp duty holiday fueled greed and malpractice in the property market.
Tales of ‘gazumping’, in which buyers outbid a property at the last minute, sealed deals and houses selling for much more than the asking price were rife at this time.
And there are fears that this could be repeated. Within hours of last Friday’s announcement, Coreco’s mortgage broker Andrew Montlake wrote on Twitter: “Just heard that a buyer who had his price agreed yesterday has now received word from the seller that he wants more money due to the change stamp duty”. And so it begins. . .’
However, experts point out that the permanence of the latest announcement could partly explain the much calmer reaction.
Broker Emma Jones, who runs When The Bank Says No, adds: “The last stamp duty cut was massive, but it was a temporary holiday. This time there will be no such rush.
Rising bills: Analysts predict the base rate could hit 6% by next spring, meaning borrowers are facing the biggest increase in their mortgage payments since the financial crisis
How will the market react?
Sky-high mortgage rates have raised fears of falling home prices.
Analysts predict the Bank of England base rate could hit 6 percent by next spring, meaning borrowers face the biggest increase in their mortgage payments since the financial crisis.
Research by the Hamptons real estate agency found that most buyers today would see any stamp duty savings disappear within six months of paying higher mortgage rates.
Estate agent Allan Fuller says: ‘The Chancellor has given with one hand and taken away with the other by reducing stamp duty while introducing policies that lead to a large increase in interest rates.’
Yesterday, Graham Cox of the Self Employed Mortgage Hub said that sky-high rates could cause home price drops of 20 to 40 percent over the next few years.
Most pundits have dismissed these figures as scaremongering and insist the stamp duty cut is enough to prevent any drastic decline. They agree that the market will naturally correct itself after almost two years of record price increases.
Researchers at Capital Economics currently predict that house prices will fall 7 percent.
Aneisha Beveridge, the Hamptons’ head of research, says: ‘Prices will start to fall in the areas where they have risen fastest in recent years, such as the north and south-east.
“The upper end of the market, in places like central London for example, will probably weather the storm a bit better.”
John Bray’s Jo Ashby says: ‘The stamp duty cut will inject a bit of momentum into the market. House prices are likely to decline next year, but that always had to happen.
And Joel Edgerton of Regan & Hallworth adds: ‘During the last stamp duty holiday, houses were coming off the market as fast as they were going on. That is not normal and things cannot stay at that level.
“The chancellor has done enough to stabilize the market until the end of the year, so we’ll have a decent Christmas.”
Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.