A stamp duty cut may be announced at Friday’s mini budget as the government seeks ways to stimulate growth of the economy, according to The Times.
The article reported Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng want to make a cut to the tax, which is paid upon purchasing a home, as part of their ‘push for prosperity’.
Although no detail is available and the Treasury has declined to comment, there has been a mixed reaction to the concept, with some worried it may create further problems.
Indeed, the stamp duty holiday introduced by the former chancellor Rishi Sunak during the height of the pandemic, whilst reigniting activity in the housing market, also inflated prices to levels which pushed property out of reach to many first-time buyers.
Joshua Gerstler, chartered financial planner at The Orchard Practice, said: “I hope Liz Truss does not fall into the trap of thinking reducing Stamp Duty is the holy grail.
“Reducing the tax on buying a property will give a short-term boost to the property market but in the long run it is a bad policy that artificially inflates house prices and merely exacerbates the problem.”
Andrew Montlake, managing director of mortgage broker Coreco, said stamp duty needed reforming but any change must be well-thought-out and considered.
“Whatever the change, in the short-term, property prices usually move up to swallow the stamp duty saving, which helps no one, certainly not first-time buyers facing rapidly rising mortgage rates and cost of living increases,” he said.
“Get it right however, and in the medium to long term we may just see a market with more transactions rather than one where stamp duty acts as a further disincentive to move.”
Rising mortgage rates
There were also concerns about the timing of the tax break. Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, was concerned it came at a time when mortgage rates were on the rise.
She said: “By ramping up prices at a time of rising mortgage rates, the end result would be higher monthly mortgage costs, which would be increasingly unaffordable.
“And the Stamp Duty holiday wouldn’t help on this front. This, in itself, could be enough to put buyers off, and if it deters enough of them, it could end up having the opposite impact to the one that’s intended.”
Karen Noye, mortgage expert at Quilter, said the stamp duty cut would be welcome news to many but was concerned first-time buyers would benefit the least.
“The tabled stamp duty cut could once again get the market motoring,” she said. “It could also provide another hammer blow for first-time buyers who may not be rejoicing about this news.
“First-time buyers already didn’t have to suffer stamp duty on properties costing less than £300,000 but may now need to compete in a market with often more well capitalised buyers.
“This doesn’t even take into account the huge house price increases we have seen over the past year making saving for a deposit near impossible without outside help.”
