Government's 'radical' move divides opinion
The government’s expected decision to cut stamp duty in a bid to boost the economy has split opinion among mortgage experts.
The move, described as “radical” by The Times and “a huge gamble” by The Telegraph, is part of the government’s plan to slash taxes across the board in a bid to kick-start the economy and boost growth.
PM Liz Truss believes cutting stamp duty will also allow more first-time buyers (FTBs) to get on the property ladder, having previously said it was “critical” to economic growth, as reported by The Times.
Stamp duty reportedly contributes about £12 billion a year to the government’s coffers. However, during the height of the COVID pandemic, a stamp duty holiday contributed to a boom in the property market. At the time, the threshold was temporarily increased to £500,000.
Currently, no stamp duty is paid on the first £125,000 of any property purchase. However, between £125,001 and £250,000 a 2% stamp duty is levied, increasing to 5% for homes costing between £250,001 and £925,000, 10% between £950,001 and £1.5 million, and 12% on those costing more than £1.5 million.
Read more: Liz Truss to cut stamp duty - report
For FTBs the current threshold at which stamp duty is paid is £300,000.
Although the announcement will not be made until the government’s mini budget on Friday at the earliest, mortgage experts have already responded to the news.
Richard Fearon, chief executive at the Leeds Building Society, criticised the proposed move, saying it would “pump up house prices”.
He said: “Cutting stamp duty rates across the board would simply be yet another short-term quick fix that ultimately will make the housing crisis worse, not better.
“The Prime Minister and Chancellor rightly want to prioritise growth. But they should deliver that in a much more sustainable way by investing in building enough houses, not funding widespread stamp duty cuts. Using the tax system in this way will pump up house prices which will only exacerbate the problems faced by first time buyers.
“Governments have successively resorted to quick-fix solutions to increase demand rather than address the structural flaws in the housing market and ensure there is enough supply.
“We must wean ourselves off an approach determined by the electoral cycle and set out a long-term plan to help aspirational homeowners and also the economy.”
Vadim Toader, CEO and co-founder of neolender Proportunity, called the cut in stamp duty a “gimmick”, adding that “it isn’t a silver bullet to making homeownership accessible to all”, while echoing Fearon’s view that it could also drive house prices up.
“Buyers, and particularly first-time buyers, are unlikely to see a massive difference to their total bottom line. As more people see now as a good time to buy, competition for the stock available on the market will increase, driving up prices. What is worse, after the levy reductions finish, house prices are unlikely to drop in line with the duty costs, meaning buying a home becomes even less affordable for those not in a position to move straight away.
“Instead of gimmicks that only really benefit those who already have the means to buy and move, we need to overhaul access to finance for homeownership.”
Nick Sanderson, Audley Group’s CEO, also described the stamp duty cut as a short-term fix. He said: “A stamp duty cut is a tried and tested way to get the housing market moving. But it is a short-term fix for a housing market that has major flaws. If a blanket reduction is announced, it will only succeed in stimulating some parts of the market and ignores the desperate need for more targeted measures.”
He went on: “This is where successive governments have fallen short and why the housing market doesn’t function as it should. The blinkered focus on first time buyers largely neglects homeowners considering downsizing or moving into housing with care and this is an area that could have a significant impact on the whole market. Liz Truss and her government have an opportunity to make a mark on the housing market, but it seems it will pass as another opportunity missed.”
Read more: Is the UK housing market cooling?
Family Building Society CEO Mark Bogard applauded the move, however, saying it would also generate revenue for the Treasury.
He told Mortgage Introducer: “The stamp duty holiday during COVID was a great success. We simply do not understand why it was stopped. It was elegantly crafted, helped with levelling up, given the geography of house prices, and generated economic activity as people moved.”
He said the additional revenue generated by people moving home would boost the economy and compensate for a cut in stamp duty as it would involve a raft of other players, including estate agents, solicitors and builders.
Investment Bank Goodbody’s chief economist, Dermot O’Leary, said the cut could improve liquidity in the market by removing a disincentive to transact, and that this could be “most beneficial” to housebuilders with exposure to higher value properties.
He added: “Some might call it irresponsible, but it is becoming clear that the fiscal approach of the new UK Prime Minister and Chancellor is a bold one.
“An SDLT cut was implemented at the start of the pandemic, aiding property prices and transactions at the time. Stamp duty is a disincentive to transact, so should improve market liquidity all things being equal.”
Andy Sommerville, director at property data and insight firm Search Acumen, said: “We saw what the stamp duty holiday did to the market during the pandemic, and I have no doubt such a move will stimulate demand again.
“I don’t think market activity will reach anywhere near the same dramatic peaks as it did in 2021, not least because available housing stock is extremely low, which puts a natural cap on how far transaction volumes can rise. But, without supply-side reforms to boost housing stock, stimulating demand will mean more buyers bidding for the same number of properties, which can only mean one thing for house prices.
“While many buyers who might have given up on homeownership will be buoyed by an SDLT cut, we need to be careful that stimulating demand, unchecked by measures to boost housing stock, doesn’t create an affordability crisis of runaway house prices, immediately following one of the most incredible periods of price growth in modern history.”
He also warned that buyers who took advantage of the cut in stamp duty now could find their housing costs soar beyond their means in years to come.
“Buyers do need to be aware that savings they make today through SDLT may be cancelled out through elevated mortgage repayments in years to come due to elevated house prices and borrowing rate rises,” he said.
David Hannah, group chairman of Cornerstone Tax, said anything that made it easier for FTBs was a welcome move, but also called on the government to increase the thresholds.
“The expected cut in stamp duty hopes to provide first-time buyers with a better chance to get on the property market,” he said. “With properties in the UK standing at the most unaffordable levels ever, anything which eases the ability to buy first homes is welcomed. Stamp duty is something which can delay the process of buying a house and add extra unforeseen costs
“We can only speculate how Liz Truss will change stamp duty, but to increase the thresholds would be an astute option as well as an introduction of a stamp duty exception for first time buyers. 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.”
A spokesperson for the Building Societies Association (BSA) told Mortgage Introducer that the society would hold back from issuing a statement until more details became available.