By ITV News Multimedia Producer Kavi Patel
Chancellor Rishi Sunak has announced a stamp duty holiday which will run until 31 March 2021 in a bid to boost the struggling housing market which has taken a hit due to the coronavirus pandemic.
Although the measure is temporary, it could have a lasting impact on people who are looking to buy homes at the lower end of the market.
What is stamp duty?
Stamp duty land tax (SDLT) is a lump sum payment those buying a property or piece of land over a certain price have to pay.
Prior to Wednesday, all house-buyers in England and Northern Ireland had to pay stamp duty on properties over £125,000, or if you were a first-time home buyer you did not need to pay stamp duty unless the property you were buying was more than £300,000.
The rate a buyer has to pay varies depending on the price and type of property - usually you would expect to pay more stamp duty if the property is worth more.
Landlords pay an extra 3% of stamp duty when they purchase a buy-to-let property.
What has Chancellor Rishi Sunak announced on stamp duty?
The cost of stamp duty on homes up to £500,000 has been suspended, potentially saving future house buyers tens of thousands of pounds.
Mr Sunak announced he has decided to cut stamp duty, telling the Commons: “Right now, there is no stamp duty on transactions below £125,000.
“Today, I am increasing the threshold to £500,000. This will be a temporary cut running until March 31 2021 – and, as is always the case, these changes to stamp duty will take effect immediately.
“The average stamp duty bill will fall by £4,500. And nearly nine out of 10 people buying a main home this year, will pay no stamp duty at all.”
What does this mean for first time buyers?
The threshold has been increased to £500,000, which would allow potential home buyers to look on the lower end of the housing market to avoid having to pay stamp duty for a significant period of time.
If a first-time buyer purchases a property for £500,000, the new system could allow them to save £10,000 on stamp duty, compared to the previous rate.
How much could you save on stamp duty?
With wide variations in house prices, the average savings that home buyers in England can typically expect to make from the stamp duty holiday vary from hundreds of pounds to as much as £15,000, according to calculations from Rightmove.
The website analysed average asking prices across the country in June to calculate the average saving that a buyer might expect to make from the stamp duty “nil rate” band being raised temporarily to £500,000.
Here are Rightmove’s estimates for the amounts that buyers could typically save, depending on where they live:
North East, £646
Yorkshire and the Humber, £1,550
North West, £1,638
East Midlands, £2,222
West Midlands, £2,262
South West, £6,100
East of England, £8,153
South East, £10,980
However, the Director of the Institute for Fiscal Studies, Paul Johnson said if the economy has not recovered by March next year, this "could lead to a depression of housing sales".
"Stamp duty is a damaging tax in normal times and acts to reduce the number of transactions; the holiday will boost transactions and provide a stimulus through the additional spending that is associated with moving house.""The holiday is due to end in March 2021. If the economy is still not recovered and if people have bought forward transactions, this could lead to a depression of housing sales while the economy is still weak."
What does this mean for homeowners looking to sell?
Mark Hayward, Chief Executive, NAEA Propertymark, said the announcement on changes to stamp duty could bring a delay to people entering or proceeding with a transaction.
He said the announcement on the stamp duty holiday "may lead a number of people to delay entering or proceeding with a transaction until such time which they enter the stamp duty holiday period."
Will this help the housing market?
Estate agents have said the stamp duty holiday is "huge news" for the property market.
Chief Executive of Hortons, an estate agency based in the East Midlands, Adam Horton said the announcement will affect all sections of the market but could also create short term disruption.
He told ITV News: "The stamp duty holiday is huge news for the property market, and will affect all sections of the market.
"This is assuming that this will come into effect immediately after the mini-budget.
"If the change is delayed it could create short term disruption as many buyers will want to delay completions until it comes into effect, as they then will be able to take advantage of the savings."
Mr Horton said: "Assuming this is going to kick in straight away, the stimulus is going to mean buyers who were reluctant to move, or couldn’t afford too, can now press on with their plans."
"Although the vast majority of first-time buyers are unlikely to see a saving, as they already don’t need to pay stamp duty on purchases up to £300,000, they will likely benefit from an increase number of listings coming to the market from the sellers who will now be inclined to go on the market due to making it easier to secure their onward purchase," he added.
However, ITV News Political Editor Robert Peston said despite the expected stamp duty announcement, the "UK housing market's structural flaw is the same as it ever was".
He added: "The big point is that the UK housing market's structural flaw is the same as it ever was, not an absence of demand, but the shortage of supply - and withdrawing stamp duty even for a period will only make this flaw worse."