Chancellor Kwasi Kwarteng has cut Stamp Duty as part of number of tax cutting measures in his mini-Budget, or fiscal event.
The move has been much trailed, with the Times reporting the potentiality of a cut earlier this week.
Under the existing system there isn’t any Stamp Duty paid on the first £125,000 of any property purchase. That figure will increase to £250,000. The stamp duty threshold for first-time buyers increases from £300,000 to £425,000.
He has also announced a new bill to overhaul planning restrictions.
National Insurance
Yesterday, in advance of the mini-Budget, the Chancellor confirmed the much-expected reversal of former Chancellor Rishi Sunak’s National Insurance increase.
On earnings over £12,570 a year it will drop from 13.25% back down to 12%. The Government said 28million people across the UK will keep an extra £330 a year each, on average following the cut.
But the cut has been slammed by some as will help those on higher incomes much more than those on the lowest. Estimates show it will only save lowest income households 63p a month.
The reversal will take place on November 6th.
Bankers bonus cap
At the same time the cap on bankers earning bonuses of up to 2x their salary has been lifted.
New Prime Minister Liz Truss has said such a move could bring more investment into the UK despite being unpopular with voters.
Stamp Duty
The cut to Stamp Duty has been on the cards all week and reform to the tax has been called for in the past.
The Government hopes the cut will attract more first-time buyers onto the property ladder, however it looks likely that house prices, which are already at historic highs, will be pushed up further.
It is also hoped that the reform will increase the number of older homeowners downsizing and free up larger property stock.
Corporation Tax
The Chancellor has also cancelled the planned rise in Corporation tax – it had been planned to increase the tax to 25% from the current level of 19%.
It’s hoped the move will increase investment in to the UK but it’ll cost tax payers around £17bn to find out.
Reaction
Harry Hodell, director of Pure Structured Finance:
“While this cut will be welcomed by potential buyers the concern has to be that house prices will continue to rise from already record levels.
“As such this will only make it more difficult for those trying to make the first step on to the property ladder to do so.
“The potential winning initiative here is the changes to planning restrict. Anything that helps speed up development should be welcomed.
“However, as with all things the proof will be in the pudding.”
Steve Seal, CEO of Bluestone Mortgages:
“Today’s decision by the Chancellor to cut stamp duty from today should encourage homeowners to move up the property ladder and consequently free up homes for first-time buyers.
“However, we need to ensure that stimulating demand in this way doesn’t push property prices even further out of reach for many.
“The real issue at hand is solving the underlying cause of the housing crisis, which is demand outpacing supply.
“To combat this, the government must focus on a more staggered approach to stamp duty rather than a cliff edge deadline to reduce pressures across all elements of the housing market and focus on delivering its housebuilding targets of 300,000 affordable homes a year.
“It is a combination of these measures that will support the younger generation and low income families locked in rental cycles to take their first steps onto the property ladder.”
Rich Horner, head of individual protection at MetLife UK:
“Among the range of policies, today’s stamp duty cut would’ve been most welcomed by first-time buyers and those already in the process of moving. However, whether this is just a short-term fix to a longer-term problem isn’t clear.
“Homeowners are stuck between a rock and a hard place right now. Mortgages are one of the biggest financial commitments people make. And yet, our research revealed a worrying 46% of homeowners have no mortgage protection whatsoever, at a time when so many are highly concerned about their ability to make necessary repayments.
“With affordability at the forefront of people’s minds, families will be looking for ways to prevent them from being financially vulnerable.”
Will Hale, CEO at Key:
“Today’s budget contained a raft of interesting changes and cuts from the new Government which should help people across the UK better manage the current cost of living crisis. The changes to stamp duty are likely to be particularly popular and the Bank of Mum and Dad is likely to see a surge in business as people look to family members for support.
“We saw £1milllion worth of housing equity released during the Stamp Duty Holiday as older family members looked to help children and grandchildren take their first steps on the ladder so it will be interesting to see the impact of these changes. With rates rising and high street lenders being more careful than ever about what they will allow people to borrow, having a sizable deposit is likely to be even more important.
“We should also not forget about ‘last time buyers’, many of whom took the opportunity presented by the stamp duty holiday to move to their forever home which was more appropriate for their needs in retirement. With the recent national insurance hike that was due to support the Social Care Bill cancelled, the Government has said they will meet this cost from other revenue but what this looks like remains to be seen and people also need to take proactive steps to support themselves.
“While these changes – especially when coupled with the energy price cap – will have a positive impact on the finances of many people across the UK, lower income groups such as pensioners are still going to feel that they are disproportionately impacted by the cost-of-living crisis. Years of chronic under saving into pensions cannot be ignored and fixed incomes can only be stretched so far.
“Using the £3 trillion worth of housing equity held by older age groups to help bridge this gap can be a good option but it is important that customers and their advisers consider carefully both the short- and longer-term implications of these products. Ensuring customers understand all their options, including potentially discussing debt issues with a charity or another expert in this area, and encouraging family involvement through the process is all part of the value that a specialist later life lending adviser can bring to the process.”
