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Cut to stamp duty, is it a good move?

• Stamp duty threshold doubles from £125k to £250k
• Tax threshold for first time buyers has jumped from £300k to £425k
• For first time buyers the tax relief ceiling has risen to £625k from £500k
• Experts warn it may push prices up but could still help buyers get on to the property ladder

The Government announced a huge cut to stamp duty today in a bid to ease the burden for first time buyers, but experts warn it may have the reverse effect.

The stamp duty threshold for house buyers will rise from £125,000 to £250,000 and from £300,000 to £425,000 for first-time buyers.

The maximum value of a property on which first-time buyers’ relief can be claimed will also increase from £500,000 to £625,000.

Raising the threshold to £250,000 means that a third of all homes currently for sale are now completely exempt from stamp duty in England, up from 7 per cent when the threshold was £125,000, according to Rightmove.

In recent months the housing market was thought to be softening, as the cost of living crisis and rising interest rates began to dampen demand and activity.

Mortgage rates have risen significantly since December last year as the Bank of England takes action to try and dampen inflation.

Furthermore, experts point out that the saving will be minor when you consider the rising cost of mortgages as interest rates continue to go up, and are expected to keep climbing in response to the government package of radical tax cuts.

Viewed in this way the tax cut may risk only benefitting homeowners looking to move or wealthy first time buyers looking at properties closer to the top of the market, and not those trying to get on the ladder with cheaper properties who are already priced out of the market.

Five-year fixed term mortgage rates have jumped from 2.64 per cent in December 2021 to 4.33 per cent this month following the Bank of England’s most recent base rate rise to 2.25 per cent.

For a £250,000 property this means paying an additional £137 a month in mortgage payments, totaling £1,644 more a year.

In his statement, Chancellor Kwasi Kwarteng said the move would help an additional 200,000 people get onto the housing ladder, but experts are sceptical that it will be first time buyers who gain from the announcement.

A leading criticism of the plans is that cutting stamp duty will increase demand pushing house prices up further due to the lack of supply, increasing the financial hurdle for first time buyers.

Following the stamp duty cut, that took effect midnight on 23 September, maximum saving for first time buyers is £6,250 as their exemption threshold increases.

While other buyers will save maximum of £2,500 as threshold at which stamp duty kicks in is permanently doubled from £125,000, but the rates of the tax haven’t changed.

However, with the Help to Buy scheme set to end next month and no similar replacement being lined up the stamp duty cut will provide some relief for first time buyers from the overall cost of buying and may encourage larger house owners to downsize and free up space for families.

There is also relief in the market that the move is permanent and not another stamp duty holiday.

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