The chancellor’s announcement that stamp duty land tax is being cut – effective from 23 September and on a permanent basis – will be welcomed by home-buyers in the current economic climate, even as economic volatility and rates rises hit borrowers.
But for buyers, and for the market, it is important to consider the technicalities of the cut, its impact, and what the next reforms introduced by the government are likely to be.
Who didn’t buy, wins
When the SDLT cut was first trailed, many buyers in the final stages of purchasing a home delayed completion until the chancellor’s announcement was made. Buyers whose purchases had not been completed before the statement were able to take advantage, but the SDLT cut is not backdated, so buyers who completed the purchase of a home earlier than 23 September – even the day before – will not benefit.
Even if contracts had already been exchanged before the chancellor’s statement, buyers can still benefit from the cut as long as the “effective date” of the purchase was not before 23 September. While the “effective date” of a transaction is usually the date of completion of the purchase, there are exceptions. For example, where the buyer takes possession of the property before completion.
One instance is on a recent purchase where the buyer moved in before 23 September and SDLT was paid but the transaction had been left uncompleted while a planning permission issue was resolved. Here it will not be possible to obtain a refund at completion, because the “effective date” had occurred before 23 September.
Levelling down?
One of the key areas where attention will be drawn is how the move impacts different types of buyers and those living in different parts of the country – especially as the “levelling up” terminology appears to be leaving the political lexicon.
For first-time buyers, the outlook is broadly good. The threshold for paying stamp duty has been increased for them to £425,000, up from £300,000. They can now save up to £8,750 more than a standard rated buyer completing at the same time, with the maximum saving applying where the price is between £425,000 and £625,000 – as after that, first-time buyers become ineligible for special relief.
However, those set to benefit most from the cut are likely to be living in places where the prices of first homes are higher. According to the most recent UK House Price Index data, the average first-time buyer price only exceeds £300,000 in London (£467,225) and the South East (£314,743). The average first-time buyer in the North East, for example, pays less than £140,000 – so was already exempt from paying stamp duty before this cut.
The policy change can arguably be seen as regressive – giving more to those who can afford more expensive properties.
One potential benefit for those outside of London and the South East is the relief offered by the proposed new “investment zones” – of which there could be up to 38, including in Teesside and the West Midlands. Here, SDLT is to be removed on new residential development land to encourage inward investment. An increase in the housing supply should benefit all buyers as it should ease pressure on prices – but exactly how and where these new zones will be brought in has yet to be clarified.
Bursting the bubble?
As is often the case for this type of relief, potential increases in house prices as markets adjust to the cut could see any gains for first-time buyers wiped out, while home movers have the buffer of existing owned properties whose prices will increase in step with the market. When combined with rising interest rates, the cut may simply be a drop in the ocean for most first-time buyers.
Money markets now predict interest rates may top 6% next year – possibly even precipitating a housing crash. Yet sellers’ asking prices are continuing to rise. If, as expected, the stamp duty cut also puts upward pressure on prices, at some point we can expect to see the bubble burst as demand swings downward in the face of unachievable mortgage costs.
Investors purchasing additional properties to rent are set to benefit from the cut for every property purchased – even though the 3% surcharge is still in place. They will pay less SDLT because of the threshold increasing from £125,000 to £250,000. This means demand for “investment” properties could crowd out other potential buyers and push up prices.
Taking the long view
The longer-term impact on the housing market will also depend on any further reforms set to follow, as the chancellor has indicated. We had expected to see further announcements in the autumn Budget, but this has been pushed to spring 2023, with the 23 November 2022 update now billed as a “medium-term fiscal plan”.
Two areas where reform is likely are on properties which have “mixed” use (residential and non-residential) and for those claiming multiple dwellings relief. Relief is likely to be removed for “granny annexe”-style properties, which can currently gain large savings, and changes are also expected for mixed-use properties – for instance, large country homes with “commercial” fields as part of the purchase. It is likely buyers of such properties will have to pay more SDLT as the system is reformed.
The permanent nature of the 23 September cut is likely to prove positive. In contrast to previous stamp duty holidays, such as the one introduced during the pandemic, the market is unlikely to see an extreme flurry of activity. Consistency is always welcome, and as the economy and the property market faces stormy weather ahead, we will need all the certainty we can get.
John Shallcross is a real estate associate at Blake Morgan
