How will stamp duty cuts help homeowners and first-time buyers?

Estate agents have told ITV News' UK Editor Paul Brand that they welcome the news of tax cuts in the chancellor's 'mini-budget'

By Multimedia Producer James Hockaday

In a bid to kick-start the UK's sluggish economy, Kwasi Kwarteng has unveiled a mini-budget described as the biggest raft of tax cuts in 50 years.

Having stepped into the job as the UK faces a recession, a cost of living crisis and rising interest rates, Britain's new chancellor has been under pressure to act quickly.

But his bid to increase spending by putting more money in people's pockets appears at odds with the Bank of England's decision to raise interest rates to get a grip on soaring inflation.

A key part of the government's 'mini-budget', unveiled today, is a move that will save an additional 200,000 people per year from paying stamp duty on their homes.

The threshold for paying the tax is being raised to £250,000, up from £125,000, while first-time buyers won't have to pay stamp duty on any property up to £425,000, compared to £300,000 previously.

The value of the property on which first-time buyers can claim relief has also been increased, from £500,000 to £625,000.

The measures will reduce stamp duty bills for all movers by up to £2,500, with first-time buyers able to access up to £8,750 in relief.

What measures did the chancellor announce and what do they mean for the country? Deputy Political Editor Anushka Asthana reports

It will be a big help for people looking to get on the housing ladder, but property finance experts warn they could still face obstacles in the form of inadequate housing stock and creeping interest rates.

Adrian Anderson, director of property finance specialists Anderson Harris, says that while the stamp duty cut is helpful, particularly for first time buyers, overall affordability is more important.

He told ITV News: "In the last 13 years we’ve had ultra-low interest rates, artificially low, put in place so we can all get spending again post financial crash,"

“All of this year they’ve been increasing quickly. The stamp duty cut is helpful but I think the bigger issue is really going to be the ongoing affordability of mortgages.”

This is what homebuyers could potentially save after today's mini-budget. Credit: HM Treasury

People on fixed rate mortgages will be protected from the Bank of England raising its base rate for now, but Mr Anderson warns they could face problems further down the line.

"There’re around £100 billion worth of mortgages that need to be renewed next year. There are a lot of people who’ve been paying a very cheap rate on their mortgage who are going to have a big surprise.

“There are a lot of people whose fixed rates are going to be expiring and their monthly mortgage payments are going to go up significantly.”

He adds: “I do see this as positive for first time buyers, it does really help them, they are saving cash on the way in.

"But I think the bigger issue we have is that those first time buyers will have to pay a lot more money on their mortgage every month going forward.”

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, tells ITV News stamp duty cuts can actually push house prices up

Renters could also end up being squeezed, Mr Anderson says, as landlords being charged more after renewing or fixing their rate could pass the difference onto their tenants to cover their costs.

He adds: “I think the bigger issue is the ongoing affordability and cost of mortgages going forward, which could be a bit of a barrier to people wanting to purchase a property.

“Property values are extremely high compared to an average income multiple. People are either having to put down very large deposits or borrow a very high proportion of their income if they can."

While the stamp duty cut will help in the short term, Mr Anderson believes it will most likely push property prices up, fundamentally because there are not enough homes available and too much demand.

Ministers are currently in talks with 38 local authorities to set up "investment zones" with relaxed planning rules which would make it easier to build new homes.

The latest cuts follow a temporary stamp duty holiday during the pandemic. Credit: PA Graphics

But while senior figures in the housing industry have cautiously welcomed the move, they say that support is still needed across the entire country.

Jonathan Rolande, spokesman for the National Association of Property Buyers, says there are other measures that could have been taken to free up supply.

“They could have tinkered with it today to include what’s called target stamp duty," he tells ITV News.

"For example, one thing that could be done is a zero band for pensioners moving downmarket, if they’re freeing up bedrooms. That would free up houses that otherwise would be sitting off the market. “There’s different targeting that could have been done. Reducing rates in areas of deprivation hasn’t been done.

“There’s a lot more that could have been done to give a carrot and stick approach to give people an incentive to buy in other areas and free up space in the South East and London."

While a cut in stamp duty will leave housebuyers better off, Mr Rolande points out that a mortgage is a 25 to 30 year commitment and says the savings they make will be "eaten up eventually" if rates keep rising.

He adds: "I suspect there will only be a very short window where the benefit will be felt, which is probably the next couple of weeks or so, until prices start to lift again. “If you’re a property seller and you’ve just found out that your buyer has been gifted a few thousand pounds by the government today, you’re going to want a slice of it, if not all of it."

The key announcements in the chancellor's mini-budget:

  • Top income tax rate of 45% for the biggest earners in the country to be scrapped

  • A cut to stamp duty - meaning the exemption level was immediately doubled from £125,000 to £250,000 and from £300,000 to £425,000 to first-time buyers

  • Planned cut of 1p to basic rate income tax brought forward by a year to 2023

  • Cap on bankers' bonuses to be removed

  • National Insurance to be cut from November

  • New low-tax “investment zones” with tax breaks for businesses

  • Planned increase on corporation tax to be axed and to remain at 19%

  • Stricter rules for those on Universal Credit - they must take active steps to seek more and better paid work, or face having benefits reduced

  • The introduction of VAT-free shopping for overseas visitors

  • Legislation to crack down on strikes forcing trade unions to put pay offers to a member vote

  • Planned increase on alcohol duty to be axed

While it may be easier to buy a house now "than yesterday", Mr Rolande says it is still harder than a year ago, when there were about a thousand more mortgage products on the market.

As banks have become more nervous about inflation and the UK's economic outlook, buyers have had fewer reduced rates and reduced fees to take advantage of.

“I think we will see a big increase in property prices, but we might see it in wider spending as well," Mr Rolande adds. “We’ve been reprieved from huge electricity and gas bills, we’ve now been reprieved from tax increases.

"It’s a big success story if it trickles down to the poorer people in society but in the meantime they don’t seem to have been helped much as far as I can see.”