How a stamp duty holiday would affect the property market and house prices


PROPERTY buyers and sellers alike may be wondering how a proposed stamp duty holiday will affect them, as well as house prices – so we take a look.

It comes as the government is reportedly considering whether to introduce a six-month stamp duty holiday on up to the first £500,000 of a property’s value in England and Northern Ireland.

It’s thought the government is planning to introduce a stamp duty holiday

The move isn’t expected to take force until the chancellor’s Autumn Budget later this year, but it’s thought it could be mentioned in Rishi Sunak’s mini-Budget this Wednesday (July 10).

Currently, only the first £125,000 of a property’s value in England and Northern Ireland is stamp duty free if it’s your main residence, or for first-time buyers it’s the first £300,000 of a property’s value if it costs under £500,000.

Of course, bear in mind stamp duty is a devolved issue with the tax itself and the applicable rates differing in Scotland and Wales.

Plus, in England and Northern Ireland there’s also a 3 per cent stamp duty surcharge on those buying second homes.

We’ve spoken to an array of property experts to uncover the winners and losers from this potential shake-up.

Home movers and downsizers will save thousands

The most obvious winners as a result of any cut to stamp duty is home movers and downsizers.

Campaign group the Home OwnersAlliance (HOA) explains that raising the stamp duty threshold to £500,000 will save almost 900,000 people from forking out on stamp duty.

Home movers buying the average size property for £248,000, according to the Office for National Statistics, would save £2,460 on stamp duty if either the £300,000 or £500,000 stamp duty-free threshold is brought in.

In a statement on the HOA’s website it said: “It’s a tax that puts off families from moving up the property ladder and making it more expensive for the elderly to downsize.

“It’s a tax that is applied every time a property is bought and sold. As a result people are choosing not to move.”

Of course, this saving assumes house prices aren’t jacked up as a result.

First-time buyers purchasing pricer properties will save

If the government ups the stamp duty threshold for first-time buyers from £300,000 to £500,000 they too would save on stamp duty costs.

Mortgage expert Nick Morrey from broker John Charcol points out that younger people are increasingly wanting to buy larger homes earlier on, so this will help them.

He said: “Nowadays, many people are waiting to get on the housing ladder with bigger properties rather than one or two bed flats so they don’t have to move again for many years – or they are going straight from a two-bed flat to their forever home. 

“So scrapping stamp duty up to £500,000 may not help those in London very much, but it will make quite a difference outside of London and the south east.”

Jeremy Leaf, a north London estate agent and former RICS residential chairman, added: “Since lockdown restrictions have been eased we have noticed less interest in smaller houses and flats.

“So easing or removing the stamp duty burden for first-time buyers, in particular, may persuade some at least to take the plunge.”

Of course, this again assumes any stamp duty savings aren’t eaten-up by house prices rising as a result.

More family homes could be freed up

Making it cheaper for people to move and downsize, could in turn mean there are more family-sized homes for first-time buyers and second-steppers.

Steve Cameron pensions director at financial provider Aegon said: “A temporary lifting of the threshold for stamp duty on house purchases might benefit some seeking to move home.

“This could include encouraging some retirees to downsize… which in turn might free up larger family homes; a generational win-win.”

Mr Morrey adds that the measures should install confidence in sellers to go to market, saying supply could increase in time as a result.

But property expert Henry Pryor says he’s not convinced a stamp duty holiday will be enough to encourage people to sell in a market expected to fall.

Nationwide posted falling house prices year-on-year for the first time in eight years earlier this month, while Lloyds had warned prices could fall by up to 30 per cent in the worst case scenario over the next three years.

Mr Pryor said: “Stamp duty holidays rarely actually encourage more transactions. Plus, sellers won’t save any money if they’re not also buying.

“On top of this, we expect many will face getting less cash post-Covid-19 so the question is will more people want to buy in what we expect will be a falling market?”

Could cause property shortage in the short-term

Most of the experts we spoke to were critical of the stamp duty plans being leaked without any confirmation yet as to if they’ll go ahead, and when they might do so.

They say this could put people off buying and selling in the meantime while they wait to see if they can save on stamp duty, which in turn could mean fewer available homes for those needing to move.

Paula Higgins, chief executive of the HOA said: “A stamp duty holiday is not needed at the moment, as the market is buoyant.

“The announcement will have the opposite effect by getting people to stop in their tracks from buying.”

Property prices could rise

Mr Pryor says the savings buyers make from any stamp duty cut could mean they have more cash to compete with others to secure deals, which could in turn push up prices.

He said: “The policy is likely to push up prices as buyers use the money they’ve saved to compete with one another.”

Mr Leaf points out that this could particularly hit first-time sellers who bought before stamp duty was cut for first-time buyers in 2017, and who then face a potential price war for second-stepper homes.

He said: “What tends to happen when stamp duty goes down, is that sellers often say to buyers; ‘you’ve had to pay less in costs, so I’ll up my asking price offer as I know you can afford more’.”

But on the other hand, Mr Leaf says if there’s more activity in the market, which could happen as a result of the measures, it tends to keep prices balanced.

HOAR has contacted HM Treasury for comment.