The suspension of stamp duty on property sales of up to £500,000 in England and Northern Ireland will revive the housing market, according to industry experts, as buyers and sellers emerge from the coronavirus lockdown.
The property website Rightmove said traffic to its listings jumped by 22% immediately after the chancellor confirmed the £3.8bn tax break, which takes place immediately, and estate agents said they expected the change to boost activity.
However, there were warnings from some in the housing industry that the move did little to address fundamental problems with the market, and could hamper first-time buyers by fuelling demand from buy-to-let investors.
The announcement in Rishi Sunak’s summer statement means that until 31 March 2021 buyers and movers will only face a bill for stamp duty – a tax levied on house buyers, set as a proportion of the house’s value – if they are spending more than £500,000 on a property.
The housing market was hit hard by the pandemic, with lockdown putting sales on hold and preventing work on many construction sites around the country.
The number of transactions was down by 50% in May, and the most recent house price report from mortgage lender Nationwide showed the first year-on-year fall since 2012.
Sunak told MPs the cut meant that nine in 10 of those buying their main home this year would not pay the tax.
Not mentioned in the statement was the fact that investors, and anyone buying a second home, would also benefit from the suspension of the main duty, and would pay only the additional homes surcharge when they buy.
Before Wednesday’s statement, first-time buyers in England and Northern Ireland paid stamp duty only if they were spending more than £300,000 on a home, while movers were taxed on all properties costing more than £125,000.
Like income tax, stamp duty is charged at different rates as the price hits different thresholds. The stamp duty holiday means that buyers will pay 5% on any part of their purchase that falls between £500,000 and £925,000; 10% on any part between £925,000 and £1.5m; and 12% above that.
Investors will pay between 3% and 15% more, depending on the price they are paying.
Dominic Agace, the chief executive of Winkworth estate agents, which has 100 branches in England, described the cut as a “tremendous fillip” for first-time buyers and movers.
“The move should also benefit people whose homes fall outside the threshold, as it will create a more active pipeline of buyers in the market,” he said.
Nick Leeming, the chairman of Jackson-Stops agency, said stamp duty had previously put off buyers from entering the market.
“Sunak’s stamp duty reform has come at the right time and will have an immediate impact on the volume of sales agreed in the coming weeks,” he said.
“There should be a flurry of fresh buyers entering the market imminently, with the hope of completing their transactions before the tax break comes to an end.”
Nitesh Patel, Yorkshire building society’s strategic economist, said he believed more homes would come on to the market as a result of the cut. But he said “likely to be a sticking plaster for the immediate issues around confidence in the housing market”, rather than a long-term solution.
“It might be better to consider reforming the entire stamp duty system so it accurately reflects today’s housing stock and pricing, as well as focusing on ensuring that the right types of homes are built in the areas which need them,” he said.
Others questioned whether the move was enough to improve confidence when there are so many uncertainties in the economy.
Tim Walford-Fitzgerald, private client partner at accountancy firm HW Fisher, said the reduction may not be enough to spark the confidence needed to take on long-term liability of a house purchase.
“There is more to consider – mortgage availability, rising house prices, economic growth and overall market confidence are critical factors and the chancellor should not forget that,” he added.
There was some surprise that the measures extended to help those buying a second home or investment property. The additional homes surcharge will still apply but investors stand to make savings as a result of the tax break.
Analysis by the property firm Hamptons International found that landlords would save an average £1,840 across England, and those buying in London would typically save £7,240.
Aneisha Beveridge, the head of research at Hamptons International, said other changes introduced in recent years meant landlords still needed to weigh up the profitability of their investment.
But the saving “might be enough to lure those investors teetering on the edge of whether to invest, particularly in London and the south”.