01 Oct Government to stand by the stamp duty cuts announced in the mini-budget
The chancellor Kwasi Kwarteng has insisted that the Government will be sticking to the growth plan announced at the mini-budget last week despite widespread concerns. Kwarteng said that focusing on increasing economic growth is one of his top two priorities with several plans announced in the mini-budget intending to aid the UK property market and in particular, first-time buyers. Plans to cut stamp duty were announced in order to aid economic growth by allowing more people to move homes and provide first-time buyers with a better chance to get on the property ladder.
The change will see the stamp duty threshold – the price at which buyers have to begin paying the levy – double from £125,000 to £250,000. A measure will also be introduced meaning first-time buyers pay no stamp duty on the first £420,000 of their purchase, and the value of the property which first-time buyers can claim relief from £500,000 to £625,000. Overall, 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. Further data released from Rightmove shows that the average UK house price now stands at £367,760 – rising 0.7% month-on-month in September. House sellers have continued to raise their asking prices despite Brits facing higher interest rates and a cost of living crisis. For many Brits, getting onto the property ladder is now an unachievable dream, with an unprecedented level of demand causing a severe undersupply of housing which the industry has been suffering from for the past few years.
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. The changes announced in the mini-budget could cause a continued increase of prices and if the number of available properties does not increase in line with demand then the property market could see bidding wars between several potential buyers for each available home. This could also be exacerbated by the influx of overseas buyers who may not be constrained by the same cuts in spending power that Brits are suffering amidst the cost of living crisis.
David Hannah, Group Chairman of Cornerstone Tax provides some expert insight:
“We all know the challenges facing Liz Truss regarding the 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 undersupply 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 that’s been announced hopes to provide first-time buyers with a better chance to get on the property ladder. With properties in the UK standing at the most unaffordable levels ever, this is a crucial step that will provide people with a much-needed boost in terms of their spending power. Fundamentally, stamp duty is something which can delay the process of buying a house and add extra unforeseen costs for those who aren’t aware of it.
“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 – this will also be increased to £420,000, and the value of the property which first-time buyers can claim relief on will go from £500,000 to £625,000. Overall, 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.”
