Mini-Budget: stamp duty cut and what it means for homebuyers

Stamp duty cut is a crowd-pleasing move that could help 200,000 homebuyers – but is it enough when housing demand outstrips supply? Kalpana Fitzpatrick explains.

Chancellor Kwasi Kwarteng has cut stamp duty tax in England and Northern Ireland in his ‘mini-Budget’ today, 

The cut means the threshold at which stamp duty is payable will rise from £125,000 to £250,000. For first-time buyers, the threshold has risen from £300,000 to £425,000.

The move means around 200,000 homebuyers in England and Northern Ireland will escape having to pay any stamp duty tax altogether. Stamp duty is a devolved tax, so buyers in Wales and Scotland have to wait and see if the cut is adopted by their governments too.

"And we’re going to increase the value of the property on which first-time buyers can claim relief, from £500,000 to £625,000," Kwasi added. "The steps we’ve taken today mean 200,000 more people will be taken out of paying stamp duty altogether. This is a permanent cut to stamp duty.”

The changes come into effect immediately.

Will the stamp duty cut drive up house prices?

Kwasi said raising the threshold at which stamp duty is payable means a typical family moving into a semi-detached property will save £2,500 on stamp duty, adding that the move will help people on all levels of the property market.

While Kwasi’s stamp duty cut could be a crowd pleaser as he makes his first fiscal announcement, there are concerns it will create a ‘toxic cocktail’ pushing up house prices and help second-home or buy-to-let property buyers.

“The horrendous cost of buying a house just got cheaper – at least for now. The stamp duty cut will ease some of the pressure on buyers right now. It’s particularly welcome as house prices rocket and interest rates continue to climb. But in the medium-term, it risks making life even harder,” says Sarah Coles, personal finance analysts at Hargreaves Lansdown.

“Structural changes in stamp duty aren’t guaranteed to stimulate demand. When relief was introduced for first time buyers, the government assessed the impact the following year. It found that most of those who took advantage were going to buy anyway, so it only increased demand by around 1,000 transactions in the first 13 months. Given the costs involved, that worked out as a cost to the Treasury of around £160,000 per extra transaction. It was also calculated to have decreased the cost of buying by up to 0,5 percentage points, but increased prices by up to 0.7 percentage points – wiping out any cost saving for buyers,” Coles adds.

There are also concerns that the biggest problem facing the property market right now is a severe shortage of supply – currently, the average agent only has 36 properties on the books. 

“Stimulating demand without addressing this just risks pushing prices higher. Higher prices coupled with higher mortgage rates are going to push properties further out of reach for millions of people, which could in itself end up scuppering sales. The property market is a delicate beast, and tinkering with tax incentives always risks producing a result you weren’t fully expecting,” says Coles

MoneyWeek’s Merryn Somerset Webb argued that a better move would have been to abolish the stamp duty tax altogether, branding it ”the worst tax on Britain” as it is essentially a wealth tax.

Stamp duty calculator

If you’re buying a house, depending on the transaction price, you may have to still pay some tax. You can work this out using our stamp duty calculator below.

The calculator is not suitable for first-time buyers, those buying non-residential land or property or non-UK residents.

Here are the rates at which stamp duty tax applies:

Up to £250,000 – you‘ll pay 0% on the portion within this band.
From £250,001 to £925,000 – you‘ll pay 5% on the portion within this band.
From £925,001 to £1.5 million – you‘ll pay 10% on the portion within this band.
Over £1.5 million – you‘ll pay 12% on the portion within this band.

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