Expert warns house prices could soar if stamp duty cut in mini-budget

‘People trying to get on the housing ladder will be tearing their hair out’: Expert warns house prices could soar if stamp duty is cut in mini-budget – but PM ‘insists it WILL help first-time buyers’

  • Kwasi Kwarteng understood to be planning to cut the tax on property purchases
  • It comes as part of efforts to keep the housing market moving and boost growth
  • Liz Truss insists it will aid young people in getting onto the property ladder
  • But experts warn first-time buyers ‘will be wondering exactly who is benefitting’

Cutting stamp duty could lead to soaring house prices and will leave people seeking to get onto the property ladder ‘tearing their hair out’, an expert has warned, but Liz Truss has insisted first-time buyers will benefit from the move.

Chancellor Kwasi Kwarteng is understood to be planning to cut the tax on property purchases as part of efforts to keep the housing market moving as interest rates rise and boost growth.

Ms Truss and Mr Kwarteng have been working on the plans for more than a month and the Chancellor will formally announce the radical plans in a mini-budget on Friday, The Times reports.

The Prime Minister, who is in New York for a United Nations summit, insists the proposal will aid first-time buyers in getting onto the property ladder.

But finance and property experts have today warned that house prices will climb if stamp duty is abolished.

Danni Hewson, a financial analyst at investment firm AJ Bell, said first-time buyers will be ‘wondering exactly who it is benefitting’.

She told LBC: ‘At the moment, although there are signs that the housing market is cooling, it has been incredibly robust. The idea that stoking the flames again, a lot of people trying to get on the housing ladder will be tearing their hair out right now.

Prime Minister Liz Truss pictured meeting Ukranian First Lady, Olena Zelenska (R) and French First Lady Brigitte Macron at The Ukrainian Institute of America in New York

Chancellor Kwasi Kwarteng is understood to be planning to cut the tax on property purchases as part of efforts to keep the housing market moving

HM Revenue & Customs statistics released today showed stamp duty receipts were up 29 per cent for April-August at £2billion

Danni Hewson, a financial analyst at investment firm AJ Bell, said first-time buyers will be ‘wondering exactly who it is benefitting’ from the cut

Ms Truss and Mr Kwarteng have been working on the plans for more than a month, it is understood

‘The question is would a cut to stamp duty increase house prices or would it just stave off the cooling? History tells us that when you cut stamp duty, what happens is house prices go up. 

‘At the moment, we are seeing house prices go down and interest rates are going up.’

Ms Hewson added: ‘For anyone looking to buy a house, they are thinking about affordability. 

‘A record number of first-time buyers are looking at having a 30-year fixed rate mortgage, which is something when I was buying a house we would have never thought about. 

‘The issue is does it make housing less affordable for people with lower incomes and I think a lot of people will look at the whole package of measures being announced by Liz Truss and the new Chancellor on Friday and wondering exactly who it is that is benefitting.’

Lucian Cook, head of residential research at Savills, said he would have preferred alternative options such as targeted relief for families looking to downsize and lower rates of stamp duty for those buying greener homes.

He said: ‘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.

Lucian Cook, head of residential research at Savills, said he would have preferred alternative options

Interest costs for the UK’s £2.4trillion debt mountain hit a record £8.2billion last month as soaring inflation took its toll

The risks of the extraordinary tax-cutting strategy were laid bare this morning with official figures showing the government borrowed another £11.8billion in August

‘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.

Setting out the measures she wanted to see introduced, Ms Cook added: ‘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.

But Stuart Adam, senior economist at the Institute for Fiscal Studies, said stamp duty is a ‘damaging tax’ and cutting it is always a positive move.

He told MailOnline: ‘This will be very helpful from an economic growth standpoint and cutting it is a good idea. 

‘The other point is that it will mainly benefit current homeowners, who will see the value of their home rise. 

‘Until we know the exact details of the plan on Friday, we don’t know about the impact on first-time buyers. It may well turn out that it will be specific to first-time buyers, then it will obviously help them. In general, though, cutting it does not do very much to help them.

‘If I am having children and looking to buy a larger house, and you are looking to downsize, stamp duty bills make it too expensive or leave you worse off. But cutting it make it easier. We are then both better off.

‘In general, stamp duty is a damaging tax and cutting it is a good thing’  

Dominic Agace, chief executive of estate agents Winkworth, also praised the plans as ‘a vote for optimism’ and said the move does not necessarily mean a rise in house prices.

Truss walks with her delegation through the United Nations General Assembly building in New York yesterday

He said: ‘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.’

And Nathan Emerson, chief executive of estate and letting agents’ body Propertymark, said: ‘Some buyers and sellers entering the market are feeling the pinch of the cost-of-living crisis and interest rate rises so a cut to stamp duty will certainly ease affordability.

‘It’s positive to see that the new Prime Minister is making steps to underpin the market; another aspect to be considered is the dire need for long-term investors who provide good-quality rental homes. It’s not yet known if the proposals to stamp duty would be in place for those buying additional homes as well.’

Ms Truss has made clear that she is determined to focus on growth, arguing that everyone gets wealthier when the ‘pie’ gets bigger.

Mr Kwarteng is also set to reverse the national insurance hike and ditch an increase to corporation tax scheduled for next year.

He will also scrap the cap on City bonuses, with Ms Truss yesterday saying she is willing to take ‘unpopular’ decisions that benefit the rich in order to revive the economy.

Separate HM Revenue & Customs statistics today showed stamp duty receipts were up 29 per cent for April-August at £2billion. 

A stamp duty holiday introduced by former chancellor Rishi Sunak came to an end last year. Spikes in demand were seen during the holiday as buyers rushed to maximise their savings.

According to the most recent Office for National Statistics (ONS) figures, the average UK house price leapt by 15.5% annually in July, marking the biggest increase in 19 years.

The jump in annual inflation was mainly because of “a base effect” from the falls in prices seen this time last year, as a result of changes in the stamp duty holiday, the report said.

The average UK house price was £292,000 in July 2022, which is £39,000 higher than at the same time last year. 

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