Have the Stamp Duty Cuts Helped?

In September 2022 former chancellor Kwasi Kwarteng announced cuts to the rate of Stamp Duty Land Tax (SDLT), or ‘Stamp Duty’ as it’s known as to most.

Under the new rules, if you are a first-time buyer you won’t be paying any stamp duty on a property until it hits the £625,000 threshold, at which point you’d be paying 5% of the property’s value. The rate follows the non-first-time buyer’s rates after £625,000.

If you’re not a first-time buyer, the threshold for Stamp Duty on a property is £250,000. After this you’ll pay 5% of the property’s value.

Originally, the rate began at £125,000 with 2% being charged between £125,000 and £250,000. Now if the property you are buying is costing £325,000, you’ll pay Stamp Duty on the portion between £250,000 and £325,000 which is £3,750.

The New SDLT Threshold If You’re Not a First Time Buyer

The SDLT nil rate has increased from £125,000 to £250,000 for all non-first-time buyers:

£0 – £250,000 = 0%
£250,001 – £925,000 = 5%
£925,001 – £1,500,000 = 10%
£1,500,001 and above = 12%

The New SDLT Threshold for First Time Buyers

The SDLT nil rate has increased from £300,000 to £425,000 for all first-time buyers:

£0 – £425,000 = 0%
£425,001 – £625,000 = 5%

After £625,000 the duty is the same as for non-first-time buyers.

Are the Cuts Worthwhile?

A global pandemic sparked the adjustment in Stamp Duty to try to keep the market alive in a time of lockdowns. What’s good about these changes is that they are permanent.

So if you’re a buyer you won’t be stressed out and rushing to hit a certain date before the duty is raised.

But the savings aren’t huge, with only £2,500 in Stamp Duty tax cuts available for properties of £250,000 and above.

But mortgage interest rates are rising and as these conveyancing solicitors in Chelmsford put it:

“The permanent cuts are welcomed up and down the UK. The cuts are set to benefit the housing market and the broader economy, including job and social mobility. However, due to the current economic crisis relating to rising interest rates, housing may remain inaccessible since mortgage rates will continue to increase.”

And others argue the cuts will actually have a negative effect.

What are the Issues?

As the cost-of-living crisis deepens, borrowing money will become harder to afford. This can push first-time buyers and lower earners away from the market and fuel a rise in those buying second homes or landlords looking to buy extra properties.

And according to a Guardian newspaper report, some experts argue the real issue is not necessarily in the cost but in the supply of houses. Without an adequate supply of new homes the cut in Stamp Duty Land Tax could just mean inflation increases.

Will Anyone Move Home Now Anyway?

Stamp Duty has always been looked at as a negative tax because it’s paid by the home buyer not the seller. It’s perhaps a tax on positive action.

Moving home is expensive. So even with cuts to the Stamp Duty, will anyone want the additional expenses of moving home when it’s not necessary, or there are more pressing bills to pay? We’re in a crisis where people are being advised to re-use tea bags.

Previous cuts had increased mortgage borrowing but creating a tax holiday vs installing a permanent change has a different effect. When there’s a tax holiday people will rush to avoid missing out. The sense of urgency just isn’t there when it’s a permanent change.

And of course, all this is in the backdrop of increasing interest rates, making borrowing more expensive, which wasn’t the case when Stamp Duty had been relaxed in previous years.

Today, it’s not the deposit requirements that stops people getting mortgages, it’s the cost of the mortgages themselves. With interest rates on fixed rate mortgages as high as 6% in some cases, it’s understandable that low earners and first-time buyers aren’t in the same position as wealthier earners and those buying second homes when it comes to mortgage affordability.

But it could be a benefit for people buying homes with cash, or those looking to downsize. Interestingly, downsizing can help ease the pressure where there are supply issues.

Final Thoughts

Time will tell as to whether a Stamp Duty Tax cut will benefit anyone. In theory any cut should be a positive step, but how it affects buyers in the context of the real world remains to be seen.

Downsizers, cash buyers and those with good incomes might be the biggest winners.