Will the stamp duty cut stave of a drop in Cheadle house prices?

Chancellor Kwasi Kwarteng’s stamp duty changes might be heartily welcomed by struggling first-time buyers and would-be movers, desperate for some help in the face of soaring interest rates.

Kwarteng doubled the nil-rate stamp duty band to £250,000, bringing an average tax saving of £2,500 for all homebuyers and making almost half of all home moves in England tax free. 

For first-time buyers, particularly in areas with high house prices, the savings are even greater. They can save a maximum of £11,250 in tax – with a new nil-rate band of £425,000, based on a higher £625,000 spend cap. Obviously, this will benefit first time buyers in the London area most, as last year, only just over 30% of all properties purchased by first time buyers were above the previous £300,000 threshold.

The initial reaction from home hunters, was understandably excitable, with Rightmove seeing traffic spike 10% immediately after the Chancellor’s announcement. However, many analysts and estate agents were less than enamoured with the announcement, suggesting Kwarteng needed to go much further and radically overhaul the whole stamp duty system.

Of course, Kwarteng’s move roughly brought the nil-rate bands in line with house price growth since they were last changed (the £125,000 nil-rate was set in 2006 and the first-time buyer nil-rate was introduced in 2017), but the Chancellor did not adjust the higher bands accordingly. Instead, the lowest stamp duty band has been wiped out. This means that the lowest rate is now 5pc, when previously it was 2pc.

Many property market experts still think the modest stamp duty saving, will be more than swallowed up in interest on higher mortgage rates as the cost of borrowing continues to soar and fear that any temporary positivity from the stamp duty changes will quickly dissipate  

Tax cut may temporarily stimulate the market and cushion price drops

When we are looking for positives for the housing market, the think tank, the Centre for Economics and Business Research previously forecast a 10% fall in transactions in 2023 but following the energy cap freeze earlier in the week and then the cut in stamp duty, they have revised that forecast to around only a 2% drop.

The CEBR also were forecasting a 4.5% drop in house prices for 2023, but again have now revised their view and feel that reduction will be more modest. 

House prices could rise at first – but the tax cuts may not outweigh interest rate rises

In the short term, the news today might help keep the market going and maintain prices and demand. It might even push prices up slightly as sellers seek to take advantage of what they as buyers having more money to spend. 

But in reality, we are not sure sellers will get that lucky. Lenders are becoming stricter on affordability because of the massive rise in the cost of living and mortgage rates increasing, which means buyers will be able to borrow less in many cases.

Many will point to the 15% house price growth recorded in July and suggest there is still strong buyer demand, however these figures reflect sales agreed several months ago, when interest rates were considerably lower, so it is unlikely that those levels of house price inflation will be seen by the end of the year and into Q1 of 2023.

We are seeing it here in our own local Cheadle market, where buyers we have been talking too for a while and were previously looking at higher priced properties are now looking for something a bit cheaper. 

Analysis today shows that if the latest hike in bank interest rates is passed onto mortgage rates, a purchaser buying an average priced UK home with a two-year fixed rate would be paying almost £300 a month more than nine months ago and the extra interest on the loan, would wipe out the stamp duty saving.

What next for interest rates? 

Given the CEBR were suggesting interest rates would reach 4.5% in 2023, was before the government mini budget yesterday with tax cuts likely to push inflation up further and therefore impact on interest rates, the cost of buying a home is only going to get more expensive and many are wondering where the tipping point will come – or has it already? 

In August, Rightmove stats, supported by the Royal Institute of Chartered Surveyors said they had seen the biggest drop in buyer enquiries for a decade.

We can of course only comment on our micro market in and around the Cheadle area, where buyer demand remains good and realistically priced properties are still attracting a high level of viewings and multiple offers, but for others, the level of interest has dropped significantly, and it remains to be seen whether this little stamp duty boost given by the government is sufficient to stave off the drop in prices others are predicting as inevitable.  

If you are thinking of selling or buying a home and would like to discuss your options and the local market conditions, please do not hesitate to call our owner Maurice on 0161 428 3663, e-mail mk@mkiea.co.uk or pop into our busy high street office in Cheadle for a chat.