UK stamp duty cut unlikely to help first-time homebuyers, experts say

The stamp duty cut announced by the UK government on Friday risks driving up house prices and will do little to help first-time buyers up the property ladder, according to housing experts.

Chancellor Kwasi Quarting laid out plans to cut the property transaction tax as part of a fiscal package focused on growth on Friday. The move is designed to give first-time buyers a boost and support an increasingly fragile housing market.

Kwarteng said the cut, which could save some buyers more than £10,000, would “support growth, increase confidence and help homeowner families”.

Effective immediately, buyers in England and Northern Ireland will not pay any stamp duty on the first £250,000 of the property’s value – double the previous £125,000 limit – and first-time buyers will not pay any tax on the first £425,000, up from 300,000 pounds sterling. .

First-time buyers in London and the southeast can save up to £11,250 under the new measures, according to the government. Buyers who have never bought a home will sell for £312,000 – the average home price in England according to the Land Registry – around £2,500, according to official estimates.

But those savings could be dwarfed by higher borrowing costs if the Bank of England seeks to offset the inflationary impact of the government’s tax cuts by raising interest rates.

Andrew Wishart, of consulting firm Capital Economics, said: market reaction Kwarteng’s statement noted that mortgage rates above 6 percent are now a “premium possibility,” a development that would leave home prices “overvalued in 2007” and could lead to a “significant correction.”

Ian Mulhern, chief economist at the Tony Blair Institute for Global Change, cited a 2019 Bank of England Working Paper Finding that a 1 percent increase in gold yields can reduce home prices by 20 percent in real terms over the long term. Cutting the stamp, he said, was “a little beer in the face of those forces”.

However, previous stamp duty cuts have driven up property values ​​because sellers are adding theoretical savings to home prices. Real estate analysts consider the government stamp duty holiday in 2020 as one of the reasons behind the rapid growth in house prices in the following two years.

“There has been a lot of stamp duty tampering over the past decade, and one thing that is absolutely clear is that buyers pay for discounts and sellers pay for increases through market adjustments,” said Rory Scarisbrick, real estate agent at Property Vision.

The opposition Labor Party criticized the decision to cut. These changes to stamp duty have been tried before. The last time the government did this, a third of the beneficiaries were buying a second home, a third home, or buying to let in a property. Is this really the best use of taxpayer money? ‘ asked Shadow Counsel Rachel Reeves.

Real estate experts said the measures would do little to insulate buyers from the effects of higher interest rates or beneficially boost numbers of first-time buyers.

The cut’ helps first-time buyers in London and the southeast. But [the saving] It is still fairly small given the large deposits they require. “It might help some buy a little faster, but it won’t help those who don’t have a parent bank,” said Neil Hudson, a housing market analyst and founder of Bilt Plus Consulting.

But he added that the cut could tempt investors to target properties worth up to £250,000.

Richard Donnell, director of research at property portal Zoopla, said the changes “will do nothing [to address] problems encountered [property market] In southeast England mortgage rates are moving around 5 per cent from 2 per cent in January.”

He added that these measures were likely to have a neutral effect on the exchange’s stamp tax receipts because 90 per cent come from properties valued at £250,000 or more, and prices are still rising.

The Treasury received a record £17.5 billion in stamp duty in the 12 months to August this year.

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