rumor that the property tax cut in Friday’s mini-budget could drive up mortgage bills

Homebuyers may welcome a possible stamp duty reduction, but they could also end up paying larger monthly mortgage bills, a financial expert has warned.

Ahead of Chancellor Kwasi Kwarteng’s mini-budget on Friday, The Times reported that sweeping stamp duty reduction plans are in the works as part of efforts to boost economic growth. Downing Street declined to comment.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said potential stamp duty cuts could risk “doing more harm than good”.

She said boosting demand in the housing market could push up house prices further, at a time when the supply of available homes is already tight.

Borrowers could then find themselves paying higher monthly mortgage costs if the price they had to pay for their home increased.

Mortgage rates are already on the rise and the Bank of England is expected to raise the base rate further on Thursday, pushing lending rates higher.

If the government were to cut stamp duty, it would ignore the fact that the real drag on the property market is a severe shortage of supply

Sarah Coles, Hargreaves Lansdown

Ms Coles said: “You can see why the government is concerned about the housing market, as there is a risk that rising mortgage rates and rising prices will dampen buyer enthusiasm. Recent experience has taught us that a suspension of stamp duties effectively stimulates demand.

“No buyer will ever complain about a tax cut, but if the government were to cut stamp duty it would ignore the fact that the real drag on the property market is a severe shortage of supply.

“Boosting demand without addressing supply issues would risk more buyers chasing a tiny number of properties, driving up prices. This is what we saw during the stamp duty holiday. inspired by the coronavirus.

“By raising prices at a time when mortgage rates are rising, the end result will be higher monthly mortgage costs, which will become increasingly unaffordable. That in itself could be enough to deter buyers, so there is the risk that it ends up doing more harm than good.

A stamp duty holiday introduced by former Chancellor Rishi Sunak ended last year. Spikes in demand were seen during the holidays as shoppers rushed to maximize their savings.

According to the most recent figures from the Office for National Statistics (ONS), the average house price in the UK jumped 15.5% a year in July, marking the biggest increase in 19 years.

The jump in annual inflation was mainly due to “a base effect” of price declines seen at this time last year, following stamp duty holiday changes, the report said.

The average UK house price was £292,000 in July 2022, £39,000 more than the same time last year.

Earlier this month, the Royal Institution of Chartered Surveyors (Rics) said average inventory levels on estate agents’ books were at a record high of 34 homes per branch, fueling upward pressure on brokers. housing prices.

Lawrence Bowles, research director at Savills, said: “News this morning of a stamp duty reduction suggests the government is hoping it will support demand at a time when leading indicators suggest it is softening after two exceptional years.

“In doing so, they will have a particular eye on how the outlook for the housing market influences consumer confidence and spending in the economy.

“Specifically, they hope it will help offset the impact of increases in the cost of living and, specifically, higher mortgage debt costs which are expected to put pressure on house prices and levels of transaction next year.

“In reality, it seems unlikely that the government will be able to implement stamp duty changes that completely outweigh these two major concerns for buyers.

“They should certainly do much more than just raise stamp duty thresholds in line with the levels of house price growth seen since we emerged from the first lockdown.”

Richard Fearon, chief executive of the Leeds Building Society, said: “Reducing stamp duty rates across the board would just be another short-term quick fix that will end up making the housing crisis worse, not better.

“The Prime Minister and the Chancellor rightly want to prioritize growth. But they should achieve this in a much more sustainable way by investing in building enough homes, not by funding across-the-board stamp duty reductions. Such use of the tax system will drive up house prices, which will only exacerbate the problems faced by first-time buyers.

“Governments have successively resorted to quick fixes to increase demand rather than addressing structural flaws in the housing market and ensuring sufficient supply.

“We need to wean ourselves off of an approach determined by the election cycle and establish a long-term plan to help ambitious owners as well as the economy.”

Karen Noye, mortgage expert at Quilter, said the potential stamp duty reduction could mean that first-time buyers, who already get some stamp duty relief, face stiffer competition from movers.

She added: ‘That doesn’t even take into account the huge house price increases we’ve seen over the past year, making saving for a deposit almost impossible without outside help.’

Nathan Emerson, chief executive of estate agents and lettings body Propertymark, said: “Some buyers and sellers entering the market are feeling the pinch of the cost of living crisis and interest rates are rising, from so a reduction in stamp duty will certainly facilitate affordability. .

“It is positive to see that the new Prime Minister is taking steps to support the market; another aspect to consider is the crying need for long-term investors who offer good quality rental accommodation. It is not yet known whether the stamp duty proposals would also be in place for those who buy additional homes.

Penny D. Jackson