Chancellor Kwasi Kwarteng today revealed his plan for economic growth in a ‘mini-budget’. The set of measures included a range of tax cuts, and a permanent cut in stamp duty effective from today.
Stamp duty for first-time buyers represents an additional cost on top of the property transaction, and the amount paid depends on the price of the property. We explain what the cut in the tax paid when buying a property will mean for you, whether you’re a homeowner considering downsizing, or a potential first-time buyer.
Stamp duty cut
In the House of Commons, Kwasi Kwarteng said that no stamp duty will be paid on the first £250,000 of a property. For first-time buyers, the threshold will now be £425,000. Previously, no stamp duty was to be paid on the first £125,000 of the price of a property.
Before the stamp duty cut, buyers had to pay stamp duty on any property of £300,000 or more. During the pandemic, a stamp duty holiday was introduced, raising the threshold at which stamp duty is paid from £125,000 to £500,000. This sparked a rise in demand.
Kwarteng says this permanent measure, effective from today, will mean over 200,000 buyers will not have to pay for stamp duty. The Government website has a stamp duty calculator tool to help you work out how much you might pay.
Rightmove has said that raising the threshold to £250,000 means that a third of all homes currently for sale (33%) are now completely exempt from stamp duty in England (up from 7% when the threshold was £125,000). It also means that two thirds of homes (66%) are now exempt from stamp duty for first-time buyers in England.
The cut in stamp duty will also make the cost of moving house slightly cheaper. ‘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,’ commented Rightmove (opens in new tab)’s property expert Tim Bannister.
At a first glance, the change in the nil-rate threshold seems to be great news for those applying for first-time buyer mortgages, particularly given the context of rising interest rates, inflation and the cost of living crisis. But Tim Bannister points out that if house prices rise further, the extra money first-time buyers have saved on stamp duty could quickly be swallowed up.
As for those selling, Tim says it might encourage them to push on with plans, given the potential for increased demand. This, in turn, will bring much-needed stock to a currently supply-constrained market.
The stamp duty cut won’t solve the problem of demand outstripping supply, but may free things up with more house moves. For instance, it could mean those looking to downsize will be more motivated to move. This could mean that the UK’s housing is better allocated, with younger families living in family houses and older couples with adult children who have moved out moving into smaller properties.
‘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,’ Tim Bannister adds.
The announcement comes at a time when many are worried about their finances, with energy prices high due to the rise in the energy price cap, and inflation has reached 9.9%. For more details, head to the Government website (opens in new tab).
Yes, the stamp duty cut will be effective from today, September 23rd.
Interest rates have risen by 0.5%, to 2.25%, which is the highest since 2008, and 49% of Ideal Home readers said they are very worried about interest rates rising. The rise in interest rates is expected to cause the housing market to slow down, increasing the cost of borrowing and lowering the rewards for saving.