Will Kwasi’s Stamp Duty cut stave off a house price crash?

Britain’s usually manic real estate market all but ground to a halt in the days leading up to Chancellor Kwasi Kwarteng’s mini-Budget.

Transactions were suspended, brokers’ phones stopped ringing and desperate sellers postponed price cuts to attract buyers.

Rumors that the government was about to introduce a stamp duty holiday had been circulating for days. And no one wanted to risk missing out by making the wrong move.

But when the chancellor finally unveiled plans to permanently lower the levy, industry insiders said there was a sense of anti-climax.

“It won’t have that much of an impact – a lot of people were hoping for something more,” says Tedworth Property’s London estate agent Christian Warman.

Jo Ashby, of the Cornwall agency John Bray, adds: ‘It certainly wasn’t a phone call.’

Historically, stamp duty cuts have poured gasoline into the housing market and encouraged families to move home en masse.

When former Chancellor Rishi Sunak abolished the tax on all properties worth up to £500,000 at the height of the pandemic in 2020, house prices skyrocketed almost overnight – and many rose even further.

But now, despite the first signs of increased activity — with traffic to the property website Rightmove rising 10 percent in the hour after the announcement — agents and brokers say the response has been lukewarm.

And within days, it was overshadowed by news of rising mortgage rates, leading some panicked analysts to predict a home price crash of up to 40 percent.

So has the Chancellor done just enough to support the market?

Who is eligible to benefit?

Last week’s tax cut is less generous than that of Mr. Kwarteng’s predecessor, Rishi Sunak.

The government has doubled the threshold at which you start paying stamp duty from £125,000 to £250,000, while Mr Sunak raised it to £500,000. Mr Kwarteng’s plan will save an average household £2,500.

New buyers will benefit the most as they will no longer have to pay the duty on homes valued up to £425,000 – an increase from the previous £300,000.

This can save them as much as €6,250. However, it will disproportionately benefit those buying in areas where property prices are higher, such as London – in the north, for example, first-time buyers are less likely to buy a property valued at over £300,000 .

Joel Edgerton, of Wigan brokerage Regan & Hallworth, says: ‘Buyers saved a staggering £12,500 over the last stamp duty holiday.

“This time, the incentive isn’t nearly as great for someone who isn’t buying for the first time.”

Second home owners pay the standard rate plus a 3% fee per tire.

The reduction does not apply in Scotland, which has a slightly different tax, the Land and Buildings Transaction Tax (LBTT). Depending on the value of the home, this is between 2 and 12 percent.

New buyers in Scotland do not pay LBTT for properties valued up to £175,000.

More Tales of Gazumping?

Critics argue that the previous stamp-duty holiday fueled greed and bad practice in the housing market.

Stories of “gazumping” — where buyers are outbid on a property at the last minute — sealed bids and homes selling for much more than asking price were rife at the time.

And it is feared that this could be repeated. Within hours of last Friday’s announcement, Coreco mortgage broker Andrew Montlake wrote on Twitter: “I just heard that a buyer who agreed on a price yesterday has now been told by the seller that they want more money because of the change in the stamp duties! And so it begins. . .’

However, experts point out that the durability of the latest announcement could partially explain the much calmer response.

Broker Emma Jones, who runs When The Bank Says No, adds: ‘The last stamp duty cut was huge, but it was a temporary vacation. There won’t be such a rush this time.’

How will the market react?

Rising mortgage rates have led to fears of a house price crash.

Analysts predict that the Bank of England key rate could hit 6 percent next spring, meaning borrowers will see the sharpest increase in their mortgage payments since the financial crisis.

Research by the real estate agency Hamptons found that most buyers today would see any savings on stamp duty disappear within six months of paying back the higher mortgage rates.

Broker Allan Fuller says, “The Chancellor has given with one hand and taken away with the other by cutting stamp duties while pursuing policies that lead to a sharp rise in interest rates.”

Yesterday, Graham Cox of Self Employed Mortgage Hub claimed that rising rates could lead to 20 to 40 percent declines in home prices in the coming years.

Most pundits have dismissed these numbers as scare tactics, claiming that the cut in stamp duties is enough to prevent a drastic crash. They agree that the market will correct itself after nearly two years of record price increases.

Researchers at Capital Economics are currently forecasting that house prices will fall by 7 percent.

Aneisha Beveridge, head of research at Hamptons, says: ‘Prices will start to fall in the areas where they have increased most in recent years, such as the North and South East.

‘The higher end of the market, for example in central London, will probably weather the storm a little better.’

Jo Ashby, from John Bray, says: ‘The stamp duty reduction will give the market some momentum. House prices will probably fall in the coming year, but that was always possible.’

And Joel Edgerton, of Regan & Hallworth, adds: ‘During the last stamp holiday, houses went off the market as quickly as they got on them. That is not normal and it cannot remain at that level.

“The Chancellor has done enough to stabilize the market until the end of the year, so we will have a decent Christmas.”

h.kelly@dailymail.co.uk