Britain’s normally maniacal property market came to a near halt in the days before Chancellor Kwasi Quarting’s mini-budget.
Transactions have been suspended, real estate agents’ phones have stopped ringing, and desperate sellers have stopped slashing prices to attract buyers.
Rumors that the government was about to launch a stamp duty holiday have been circulating for days. And no one wants to risk losing by making the wrong move.
But when the chancellor finally revealed plans to permanently lower stamp duty, industry insiders say there was a feeling of no climax.
Tax cut: The government has doubled the threshold at which you start paying stamp duty from £125,000 to £250,000. It will save the typical family £2,500
“It’s not going to have that much of an impact – a lot of people were hoping for something more,” says London estate agent Christian Warmann, of Tedworth Property.
“It was definitely not a situation where the phone rings out of the way,” adds Joe Ashby, of Cornwall’s John Bray Agency.
Historically, reductions in stamp duty have injected gasoline into the housing market and encouraged families to move homes in droves.
When former chancellor Rishi Sunak scrapped tax on all property worth up to £500,000 at the height of the pandemic in 2020, house prices soared almost overnight – and many more continue to do so.
But now, despite initial signs of increased activity — traffic to the property site Rightmove jumped 10 percent in the hour after the announcement — agents and brokers say the response has been tepid.
Within days it was overwhelmed by news of rising mortgage rates, leading some panicked analysts to predict a collapse in home prices of as much as 40 percent.
Did the Chancellor do enough to support the market?
Who is in line to take advantage?
Last week’s tax cut was less generous than that of Kwarteng’s predecessor, Rishi Sunak.
The government has doubled the minimum at which it starts paying stamp duty, from £125,000 to £250,000, while Mr Sunak has raised it to £500,000. Mr Kwarteng’s scheme would save the typical family £2,500.
First time buyers will benefit the most as they no longer have to pay tax on homes worth up to £425,000 – up from the previous £300,000.
This could save them up to £6,250. However, it will disproportionately benefit those who buy in areas where property prices are high, such as London – in the north, for example, first-time buyers are less likely to buy homes worth more than £300,000.
‘Buyers were saving up to £12,500 over the last stamp duty holiday,’ says Joel Edgerton, of Wigan estate agency Regan & Hallworth.
“This time around, the incentive isn’t anywhere close to anyone who isn’t a first-time buyer.”
Second home owners pay the standard rate plus an additional 3 percent fee on each scale.
The cut does not apply in Scotland, which has a slightly different tax called Land and Building Transaction Tax (LBTT). This percentage ranges between 2 percent and 12 percent, depending on the value of the property.
First time buyers in Scotland do not pay LBTT on properties up to £175,000.
Buying a home now ‘feels like a gamble’
Mum-of-two Charlotte Dale is set to save £2,500 in stamp duty on the house she recently bought in Richmond, southwest London.
However, this is not enough to settle the higher mortgage that she will be locked into.
Property deal fails: Charlotte Dale with her young family
Charlotte, 34, a journalist who buys with her partner, says: ‘We had been planning to buy a property for six months but negotiations fell through.
Everyone kept saying there was going to be a collapse in house prices, so we thought it was best to hold off. But now we’re kicking ourselves a little.
My broker said our mortgage would be a lot worse than it was six months ago, but it’s the best he’s ever had for at least two years.
So while we save a little bit on stamp duty, we’ll pay more in the long run.
“Buying a home at this moment feels like a gamble.”
More stare tales?
Critics claim that the previous stamp duty holiday fueled greed and malpractices in the housing market.
Tales of ‘stare’ – where buyers are outbid on a property at the last minute – sealed bids and homes selling for well over the asking price were rife at this time.
There are fears that this will happen again. Within hours of last Friday’s announcement, Mortgage Broker Andrew Montlake, of Coreco, wrote on Twitter: “Just heard a buyer whose price was agreed upon yesterday has now received word from the seller that they want more money due to the stamp duty change.” ! and so it begins . . “.
However, experts point out that the persistence of the latest ad may partly explain the quieter reaction.
Moderator Emma Jones, who runs When the Bank Says No, adds: “The last stamp duty cut was massive, but that was a temporary holiday. There will be no such rush this time around.”
Rising bills: Analysts expect the principal rate to reach 6% by next spring, which means borrowers will face the largest increase in mortgage payments since the financial crisis.
How will the market react?
Rising mortgage rates have led to fears of a collapse in house prices.
Analysts expect the Bank of England’s base rate to reach 6 percent by next spring, which means borrowers will face the biggest increase in mortgage payments since the financial crisis.
Research conducted by the Hamptons real estate agency found that most buyers today will see any stamp duty savings wiped out within six months of paying off higher mortgage rates.
“The Chancellor has given and taken with the other hand by lowering stamp duty while introducing policies that lead to skyrocketing interest rates,” says real estate agent Alan Fuller.
Yesterday, Graham Cox, of the Self Employed Mortgage Hub, claimed that higher rates could drop house prices by between 20 percent and 40 percent over the next few years.
Most experts have dismissed the figures as alarmist and insisted that lowering stamp duty is sufficient to stave off any violent collapse. They agree that the market will naturally correct itself after nearly two years of record high prices.
Researchers at Capital Economics currently predict that home prices will drop by 7 percent.
“Prices will start to fall in the areas where they have risen fastest over the past few years — like in the North and Southeast,” says Aneisha Beveridge, Hamptons head of research.
“The higher end of the market, in places like central London, for example, will probably weather the storm a little better.”
“Reducing the stamp duty will inject a little bit of momentum into the market,” says Jo Ashby, of John Bray. “Home prices are likely to come down next year, but that was always going to happen.”
Joel Edgerton, of Regan & Hallworth, adds: “During the last stamp duty holiday, homes were getting off the market as quickly as they were put in. It’s not normal and things just can’t stay at that level.”
“The chancellor has done enough to stabilize the market until the end of the year, so we’ll have a decent Christmas.”
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