It’s being reported that Friday’s “emergency mini-Budget” will feature a cut to Stamp Duty. Is this wise, and what impact might such a move have on the property market and on the wider UK economy.
Prime Minister Liz Truss and Chancellor Kwasi Kwarteng are tipped to announce some kind of cut to Stamp Duty – a tax on property transactions – on Friday. Details are scant, but two sources told The Times that the “growth plan” has been in the works for the last month.
The prime property sector has opinions.
The general consensus, as you might expect, is that less tax is good. But there are clear notes of caution that a short-term crowd-pleaser might have unintended consequences – including yet more escalation of house prices.
‘The Government will have a particular eye on how the prospects for the housing market influence consumer confidence and spending in the economy’.
Lucian Cook, Head of Residential Research at Savills.
“By cutting stamp duty the government will be hoping that it supports demand at a time when lead indications suggest that it is starting to wane. In doing so, they will have a particular eye on how the prospects for the housing market influence consumer confidence and spending in the economy.
“More specifically they will be hoping that it will go some way to offset the impact of increases to the cost of living, and more pertinently, higher costs of mortgage debt, that look set to put further pressure on house prices and transaction levels next year.
“In an ideal world, we would have liked to have seen the government take the opportunity to look at how changes to stamp duty could address specific issues in the housing market.
“Firstly, they should consider a targeted relief for downsizers – perhaps similar in scale and design to that available to first time buyers – in order to remove one of the barriers to more efficient use of our existing housing stock.
“Secondly, they should look at lower rates of stamp duty on the purchase of more energy efficient homes, particularly as housing remains the problem child of reducing our carbon emissions. That would further encourage existing homeowners to undertake improvement works before the point of sale.”
‘Previous cuts to stamp duty haven’t really worked’.
Camilla Dell, Managing Partner at Black Brick.
“I am not convinced cutting stamp duty will aid investment into the UK. The market has absorbed stamp duty increases since they were first introduced in 2014. The cost of stamp duty, whilst high in the UK, is not a deciding factor for investment here, particularly for high net worth individuals who simply factor the stamp duty cost into the overall price of a property. Previous cuts to stamp duty also haven’t really worked. For example, during Covid, the then Chancellor Rishi Sunak cut stamp duty for all purchases up to £500,000. The cut benefitted all buyers; everyone from first time buyers to second home owners, investors and overseas buyers. The end result was that house prices rose, higher than the actual cut in stamp duty. An unintended consequence, and proof that simplistic cuts to tax don’t work or benefit those who need them most.”
“Any future changes or cuts to stamp duty must be carefully considered. We welcome anything that supports first time buyers, but we don’t believe that the entire market needs stamp duty to be cut in order to support and grow the UK economy. Affordability and supply are the two most important areas that need to be addressed for first time buyers. Finally, if changes are coming, then we would encourage the new Prime Minister and Chancellor to bring the changes in swiftly. What the property market hates is uncertainty. In the run up to any changes, we are bound to see deals go on hold, which isn’t good for anyone.”
‘Prices could spike higher in the short term’.
Tom Bill, Head of UK Residential Research at Knight Frank.
“Nobody can accuse the new government of lacking an economic vision.
“If its low-tax approach extends to stamp duty, recent history tells us it will trigger higher levels of demand in the housing market at a time when mortgages are getting more expensive, which will support social mobility. Prices could spike higher in the short term if supply initially struggles to keep up but more balanced conditions will return provided the cut is immediate and permanent.”
‘Any reduction in stamp duty will be well received’.
James Hyman, Head of Residential at Cluttons.
“Any reduction in stamp duty will be well received and essential to help those worst affected by rising interest rates and cost of living to get on the property ladder. Whilst a reduction in stamp duty will help the housing market to continue to flourish as it has over the past two years, what would really help the UK’s current housing crisis is a reduction of the 3% levy on second home purchases. The main reason why rents have escalated so quickly over the last two years has been lack of supply, which has been driven by so many landlords being forced to exit the market due to the government no longer making it viable to be a private landlord.”
‘It has to be encouraging that we are talking about growth plans, not austerity’.
Dominic Agace, Chief Executive of Winkworth.
“It has to be encouraging that we are talking about growth plans, not austerity. Stamp duty reform would embody this. We know lower tax allows more people to right size for their family needs, particularly in the South-East. As we saw immediately after the pandemic in London, that doesn’t mean prices have to increase. Downsizers are encouraged to make the move so the housing ladder is unblocked. With more movers, it also means the overall government tax take will increase.
“A budget for growth is a vote for optimism. I think that’s a route we all naturally prefer. Sentiment is a key driver in the housing market, which plays a huge role in the UK economy through its ripple effect to all types of businesses.”
‘Truss’ government must be laser-focused on increasing housing stock over short-term stimulus to prop up growth’.
Pete Ladhams, managinging director of Assael Architecture.
“Truss’ government must be laser-focused on increasing housing stock over short-term stimulus to prop up growth.
“As tempting as it may be to take the path well worn and resort to stamp duty cuts and tax incentives, these unsustainable solutions will not motivate those in under-occupied homes to downsize, or secure housing affordability for first-time buyers hardest hit by spiralling house prices.”
‘Any help to reduce the cost of moving will no doubt be welcomed by buyers’.
Tim Bannister, Rightmove’s property expert.
“With demand starting to soften slightly over the past few months, and headwinds anticipated to grow as 2022 draws to a close and we enter 2023, any help to reduce the cost of moving will no doubt be welcomed by buyers if a stamp duty cut is announced on Friday.
“Sellers who may have been considering listing their property for sale may be encouraged to push on with their plans given the potential for increased demand, in turn bringing much needed stock to a currently supply constrained market.
“If the cuts benefit homes in higher price brackets it would help those trading up more than it would help first-time buyers. With rising interest rates and cost of living it could be welcome to those looking for a bit more buffer to find the home they want, but if prices rise further then then that extra money could quickly be swallowed up.
“The impact on supply, demand and ultimately prices will depend on the detail, including if it will it extend to second-home buyers and investors.”
‘The Government would have to do much more than simply increase stamp duty thresholds in line with levels of house price growth seen since we emerged from the first lockdown’.
Lawrence Bowles, Director of Research at Savills.
“News of a stamp duty cut suggests the government will be hoping that it supports demand at a time when lead indicators suggest that it is softening after two bumper years. In doing so, they will have a particular eye on how the prospects for the housing market influence consumer confidence and spending in the economy.
“More specifically they will hope that it will go some way to offsetting the impact of increases in the cost of living and, more pertinently, higher costs of mortgage debt that look set to put pressure on house prices and transaction levels next year.
“Realistically, it seems unlikely that the Government will be able to implement stamp duty changes that completely outweigh these two major concerns for buyers. Certainly, they would have to do much more than simply increase stamp duty thresholds in line with levels of house price growth seen since we emerged from the first lockdown.”
Prime Minister Truss is refreshingly radical and is not frightened to tread on sacred ground and deal effectively with the ‘Sacred Cows’ of taxation
Trevor Abrahmsohn, Glentree Estates.
“Playing with Stamp Duty rates has been the pastime of many former Chancellors over the past eight years, ever since the hapless Osborne decided to convert the system from a ‘slab-sided’ to a ‘sliced’ version in 2014. The rates at the higher end, particularly for people with more than one house and then more recently, of foreign origin, are now 17% and for a long while these changes resulted in a lower tax-take for the Treasury, quite apart from the distorting effect that it had on the number of sales which took place.
“There is no question that Prime Minister Truss is refreshingly radical and is not frightened to tread on sacred ground and deal effectively with the ‘Sacred Cows’ of taxation.”
Read Abrahmsohn’s full thoughts on the proposed Stamp Duty cut, and why he hopes Liz Truss will be “our Queen Boadicea in difficult economic times” on PrimeResi here.