Stamp duty cuts in the mini-budget would help the real estate industry

The government's first mini-budget since Liz Truss assumed office featured, among other things, a drop in stamp duty.

Chancellor Kwasi Kwarteng's latest mini-budget has bolstered the Conservatives' low-tax position. He highlighted a host of initiatives in it targeted at boosting the country's economy in the face of the current inflationary environment.

As with any major tax or spending rise, there were supporters and adversaries. The top income tax rate of 45% was decreased, and the February National Insurance rise was reversed, putting "more money in people's pockets."

The "permanent" stamp duty cut, rather than the temporary holiday that drove the market during the COVID pandemic, was one of the most significant improvements. This is being touted as a way to keep the housing market active throughout the country's economic downturn.

The Facts About Stamp Duty Reduction

The following stamp duty rates apply to residential property purchases in England and Wales, and are effective immediately (September 23):

Previously, only the first ￡125,000 of a transaction was exempt from stamp duty land tax (SDLT), but all thresholds above this point have been lifted, lowering the tax burden on homebuyers.

The stamp duty cut for first-time purchasers is even more significant, with no SDLT payable up to ￡425,000 and a 5% rate on the part from ￡425,001 to ￡625,000.

The 3% fee on second homes remains in effect for property speculators. So 3% will be levied on any property worth up to ￡250,000, 8% on the next ￡675,000 (the part between ￡250,001 and ￡925,000), and so on. However, most buyers will benefit from the reduced stamp duty.

The theory's underlying thinking

With these tax cuts and adjustments, the government's goal is to assist the country's economic development, and one of the major drivers of this in the UK is property market activity. This will be a catalyst for the economy by keeping the industry running and attracting purchasers.

Every existing home transaction (excluding new buildings) provides a net of ￡9,559 to GDP. This covers renovations, home goods purchases, removals, surveys, agency fees, and other expenses.

According to Home Builders Federation study, every 100,000 property sales generate more than 11,500 jobs

Nobody can claim that the new administration lacks economic direction.

Previous experience shows that extending its low-tax policy to stamp duty will enhance demand in the housing market at a time when mortgages are becoming more expensive, therefore encouraging social mobility.

Prices may rise in the short term if supply does not initially keep up, but more balanced conditions will return if the cut is rapid and durable.

More from the industry

Stamp duty levels have long needed to be rebalanced, particularly for first-time buyers, in order to keep up with the huge surge in house values.

We had hoped that stamp duty for downsizers or first-time buyers would have been investigated as well, in order to free up the latter sector of the market, which when blocked, slows movement further down for second steppers and first-time buyers, generating stagnation as buyers have nowhere to go.

The Chancellor's statement is welcome news for first-time buyers. Because of the government's adjustments to stamp duty, more individuals will be able to afford to buy a home.

It's especially beneficial at a time when interest rates are driving up borrowing costs. Today, the government also reiterated its commitment to homeownership. We all agree that it is critical: homeownership should not be reserved for the wealthy but should be accessible to everybody. This tax decrease is a positive step forward.

The fact that the move is permanent and begins today is especially helpful since it eliminates the confusion of former stamp duty holidays. This means that those who put off their transfer earlier this week due to speculation may now restart their trade and complete it.

The government has followed our earlier study, which showed that almost a third more first-time purchasers are forced to pay stamp duty than five years ago. Stamp duty is presently paid on one out of every four first-time purchases.

We are glad that the government has listened and responded by changing how the tax is applied to first-time home purchasers.