Experts have warned that reducing stamp duty might cause home prices to skyrocket and make those who are trying to go on the housing ladder “rip their hair out,” but Liz Truss is certain that first-time buyers would gain from the decision.
According to reports, Chancellor Kwasi Kwarteng intends to reduce the tax on real estate transactions in an attempt to maintain the housing market active while interest rates increase and spur economic development.
The proposals have been developed by Ms. Truss and Mr. Kwarteng for more than a month, and the Chancellor will officially present them in a mini-budget on Friday, according to The Times.
The idea, according to the Prime Minister, would help first-time homebuyers jump on the housing ladder. The Prime Minister is in New York for a United Nations meeting.
But financial and real estate specialists have now issued a warning that if stamp duty is eliminated, home prices would rise.
First-time purchasers will be “wondering precisely who it is benefiting,” according to Danni Hewson, a financial analyst at the investment company AJ Bell.
Although there are indications that the property market is slowing down, she told LBC that it is still quite strong right now.
Adding fuel to the fire again, it is predicted that many individuals who are now attempting to climb the housing ladder will be pulling their hair out.
The issue is whether a reduction in stamp duty would result in higher home prices or just a delay in the cooling. According to history, when stamp duty is reduced, property values increase.
“Right now, property values are falling and mortgage rates are rising.”
“Anyone trying to purchase a property is thinking about affordability,” Ms. Hewson said.
“A record number of first-time buyers are considering getting a 30-year fixed rate mortgage, which is something we would never have considered when I was purchasing a home,” says the buyer.
The question is whether it would make housing less affordable for those with lower incomes, and I believe that many people will examine the whole package of policies outlined on Friday by Liz Truss and the incoming Chancellor and ask just who will profit from them.
Savills’ head of residential research, Lucian Cook, said that he would have chosen other choices such targeted assistance for families wishing to downsize and reduced stamp duty rates for people purchasing greener houses.
“By reducing stamp duty, the government will be hoping that it stimulates demand at a time when lead indicators show that it is beginning to ebb,” he added.
When doing so, they will pay close attention to how consumer confidence and economic expenditure are influenced by the outlook for the housing market.
More particular, they will be hoping that it will somewhat offset the effects of rising living expenses and, more importantly, increasing mortgage loan charges, which are expected to put more pressure on home prices and transaction volumes in 2019.
In a perfect world, the government would have looked at how altering the stamp duty might solve certain problems in the housing market.
As she outlined the policies she favoured, Ms. Cook said, “First, they should explore a targeted relief for downsizers – maybe comparable in size and design to that given to first-time buyers – in order to eliminate one of the obstacles to a more effective use of our current housing stock.
Secondly, they should consider lowering stamp duty rates for the purchase of more energy-efficient houses, especially because housing continues to be the biggest obstacle to lowering our carbon emissions.
“That would incentivize current homeowners to make improvements before the point of sale much more.”
However, stamp duty is a “damaging tax,” according to senior economist Stuart Adam of the Institute for Fiscal Studies, and its reduction is always a good idea.
According to him, reducing it is a wonderful idea and would be highly beneficial for economic development, he told MailOnline.
The second reason is that it will mostly help present homeowners, whose homes’ values will increase.
“We don’t know about the effect on first-time purchasers until we see the specifics of the proposal on Friday. If it turns out to be tailored specifically for first-time purchasers, it will clearly benefit them. However, in general, reducing it doesn’t really benefit them much.
“If I want to have kids and purchase a bigger property, and you want to downsize, stamp duty costs make it too costly or make you worse off,” the person said. However, cutting it makes it simpler. Consequently, we both benefit.
Stamp duty is generally a bad tax, thus lowering it is a good idea.
The proposals were lauded as “a vote for hope” by Dominic Agace, chief executive of the estate firm Winkworth, who also noted that there is no guarantee that property prices would increase as a result of the action.
The fact that we are discussing growth plans rather than austerity measures, he remarked, must be positive. This is what stamp duty reform would entail. We are aware that reduced taxes enable more individuals, especially in the south-east, to appropriately size for their family requirements.
‘That doesn’t imply prices have to go up, as we saw in London just after the outbreak. Downsizers are urged to relocate so that the housing ladder may open up.
“More movers” also indicates that the total amount of taxes collected by the government will rise.
“A budget that supports growth is a vote for hope.” I believe we all inherently favour that path. The property market, which has a significant impact on the UK economy through spreading to all kinds of industries, is heavily influenced by sentiment.
And Nathan Emerson, chief executive of the organisation representing estate and renting agencies Propertymark, added: “A decrease to stamp duty would definitely alleviate affordability as some buyers and sellers entering the market are feeling the strain of the cost-of-living issue and interest rate hikes.”
It’s encouraging to see that the new prime minister is taking action to support the market, but there is still a pressing need for long-term investors who can provide high-quality rental properties. If the proposed changes to stamp duty apply to those purchasing multiple properties as well, it is not yet clear.
Ms. Truss has made it apparent that she intends to concentrate on growth, contending that when the “pie” grows, everyone benefits from more income.
In addition, Mr. Kwarteng plans to cancel a planned rise in company tax for the next year and roll back the national insurance rate increase.
In addition, he would eliminate the ceiling on City bonuses. Ms. Truss said yesterday that she is prepared to make “unpopular” measures that help the wealthy in order to boost the economy.
According to separate HM Revenue & Customs numbers released today, stamp duty collections from April through August increased by 29% to $2 billion.
Rishi Sunak, a former chancellor, had instituted a stamp duty vacation that ended last year. Demand increased throughout the Christmas season as shoppers raced to maximise their bargains.
The average UK home price increased by 15.5% yearly in July, the largest gain in 19 years, according to the most current Office for National Statistics (ONS) data.
According to the report, the increase in annual inflation was primarily caused by “a base effect” from price decreases that were observed around this time last year as a result of modifications to the stamp duty holiday.
In July 2022, the average price of a home in the UK was £292,000, an increase of £39,000 from the same period in 2017.