"This is only welcome news if you already have a deposit in place and we must also consider the current position of our housing market and wider economy."
But the news on Friday that the chancellor Kwasi Kwarteng is scrapping stamp duty for houses under £250k may seem like good news for the housing market, but the outcome of the last stamp duty move made the housing crisis worse, not better.
This announcement will bring the amount of which there is no stamp duty to pay from £125,000 to £250,000. First-time buyers currently pay no stamp duty on the first £300,000, this will now change to £425,000.
This is great news on the face of it for both purchasers and first-time buyers with it being a permanent change and not a ‘holiday’ – which is what caused the spike in house prices as buyers clamoured to get deals over the line before the deadline ended during the pandemic.
But this is only welcome news if you already have a deposit in place and we must also consider the current position of our housing market and wider economy.
House prices are at an all-time high, interest rates are rising, wages are stagnant, inflation is just under 10%, and many lenders are tightening criteria. Despite a cut in stamp duty, it will still be difficult for those who hope to enter the housing market, as fewer will be in the strong financial position to do so.
In addition, the cut will help first-time buyers somewhat but what it creates is more buyers vying for the same housing stock, which in turn, allows sellers to simply increase their asking price to come just under the threshold. During the period of the stamp duty ‘holiday’, the UK’s average house price rose by just over £30,000 – negating the benefit of not paying any stamp duty several times over.
Will that now happen in this price bracket, meaning even larger deposits will be needed?
What would be more meaningful for the housing market would be to raise the nil rate to the UK’s average house price and continue to rise it over the years in line with the house price index.
We will actively watch to see what happens, but it may make things tougher for first-time buyers who we desperately need to stimulate the market in the long-run.
