Will Rising Rates Hinder Interest in Stamp Duty Cuts?
Chancellor Kwasi Kwarteng’s mini-budget announcement has had a major impact on the property industry, with a permanent Stamp Duty Land Tax (SDLT) cut raising the SDLT-free threshold from £125,000 to £250,000 – and from £300,000 to £425,000 for first time buyers.
We all remember the surge of activity that followed the 2020/2021 Stamp Duty holiday, with conveyancers struggling to keep up with the high demand, and Today’s Conveyancer has reported that Rightmove traffic saw a huge increase within just one hour of the announcement.
The Stamp Duty holiday gave the property market a major boost when it was most needed, after the COVID-19 pandemic instilled caution amongst buyers. Now, with soaring energy bills having a similar impact on households’ budgets, the SDLT cut has come at a welcome time for developers and estate agents, who were otherwise preparing for a slowdown in the market, with lenders taking utilities into account and buyer demand subsequently slowing down.
What will be interesting to see in the coming months is whether the mini-budget will have a sustained impact on the housing market, given that it doesn’t have the same ‘limited time only’ appeal that the SDLT holiday had and with the sterling falling to a record low. Buyers don’t need to rush into anything to take advantage of the situation the way they previously did, and may still err on the side of caution until the winter bills have cleared, especially with increasing interest rates.
The increase in interest rates is a major concern for homebuyers, with Money Saving Expert founder Martin Lewis advising first time buyers that the time is not right to take their first step on the property ladder, with interest rates predicted to rise to 6% next year, unless they are well prepared and foresee the property being their long-term home. Halifax, Virgin Money and Skipton Building Society temporarily withdrew fixed deals for new customers during the aftermath of the mini-budget; however, they have all since returned with starter mortgages, with interest rates well in excess of 5%, with Skipton’s Head of Mortgage Products, Charlotte Harrison, reporting that they have “prioritised getting five-year fixes into the market first, as [their] broker partners are telling [them] that’s what their clients need most.”
While the SDLT cut may prompt some experienced and confident buyers into transactions, many buyers – particularly those who are inexperienced or relatively settled – may opt to wait for an upturn in the economy, perhaps using the time to save for a bigger deposit, rather than commit to a loan with such high interest rates, with even 10 year loans fixed at around 5.29%.
On the other hand, opportunistic and motivated buyers may decide that it would be a shrewd move to take advantage of the tax cut now and buy an energy efficient new build. Developers may therefore be well advised to lean into the sustainable features of their homes in their marketing by sharing details on the potential savings on energy bills.
Despite forecasts that many people will be looking to downsize to save energy costs, further cuts to income tax and the lifted cap on bankers’ bonuses may lead to increased interest from buyers in large, detached family homes or city apartments, although the perilous position of the pound following the budget is warding off domestic investors.
Kwarteng also announced planning reforms are on the horizon, with a plan to get Britain Building. Some may roll their eyes at another catchy soundbite that is far from a sure thing; however, the promise of streamlining processes will be music to the ears of PropTech companies, like Spaciable, who have been preaching the need for automation for years. Housing Secretary, Simon Clarke, has since reiterated plans to “build more houses […] in the right way,” with plans to be confirmed in the coming weeks, stressing that first-time buyers will be at the forefront of the agenda. Investment Zones – which are now open for applications until 14th October – are designed to propel development of homes through liberated planning conditions and low taxes; however, charities including The RSPB and National Trust have expressed concern over the lack of protection for the environment and wildlife that could occur as a result of looser regulations. In a market of increasingly environmentally-conscious homebuyers, local authorities and developers will need to be proactive in reassuring their customers of their ESG credentials.