How will the recent stamp duty cut effect homebuyers?

In Kwasi Kwarteng's controversial mini budget, he announced that no tax is to be paid on properties up to the value of £250,000, a doubling of the previous threshold. Meanwhile the threshold for first time buyers has increased to £425,000, up by £125,000. It's certainly a bold move by the new Chancellor and one he says will be permanent, but what will the impact of these changes be on house buyers and the market in general?

Under the new system, which came into immediate effect, the first £250,000 of a property's value will be exempt from taxation, after which a five per cent levy will be charged, rising to ten per cent over £925,000, topping 12 per cent over £1.5m. In real terms it means that those buying homes in the £250,000 to £925,000 bracket (which is the majority of home buyers in England) can expect to save £2,500 on stamp duty compared to previously.

First time buyers, meanwhile, will no longer pay stamp duty tax on the first £425,000 of a property's price and are now allowed to claim tax relief when the property costs up to £625,000 as opposed to the £500,000 limit set previously. This is especially relevant to first time buyers looking to purchase in London and the South East where the average house price is nudging £550,000. Before the changes they would have faced a stamp duty bill of more than £17,000 whereas now it's a little under £6,000, a saving of more than £11,000.

It's hoped that such an attractive saving will help increase home ownership and perhaps even encourage first-time buyers to purchase a bigger home as their first move.

However, critics have been quick to point out that stimulating the housing market at a time when the supply of available homes is already tight could have the effect of pushing house prices up even further. This comes on the back of Rightmove's recent report that the average price of homes coming to market in September increased by 0.7 per cent on the previous month.

Whether there's a spike in house prices over the next few months is also dependent on whether interest rates continue to rise to combat inflation. If mortgage affordability is hit as the cost of repaying loans increases, then a surge in house hunters driving up prices seems unlikely.

What's generally agreed to be a good thing is the fact that these changes are permanent, thus avoiding the sudden increase in demand experienced during the stamp duty holidays, when the potential tax savings of £15,000 proved a massive incentive for many. With savings being lower with this change and with no cut off period, it's anticipated that the febrile market experienced during the pandemic will be avoided.