What Stamp Duty Changes and Other Factors Mean for the Housing Market and Property Investors

In the mini-Budget delivered on 23rd September, Chancellor of the Exchequer Kwasi Kwarteng announced permanent cuts to Stamp Duty Land Tax (SDLT) as part of the Government’s wider plan to boost economic growth.

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SDLT previously became payable for non-first-time buyers when purchasing a home with a purchase price above £125,000, with the changes raising this threshold to £250,000. The threshold for first-time buyers has been raised from £300,000 to £425,000.

In addition, the property value on which first-time buyers can claim SDLT relief has also been increased, from £500,000 to £625,000. Purchases exceeding this will be subject to standard SDLT rates, which start at 5%. 

With mortgage interest rates rising, it’s positive to see these cuts to SDLT. The Chancellor stated the changes should remove circa 200,000 homebuyers from having to pay SDLT, and a factsheet accompanying the announcement also claims that “doubling the nil-rate band will enable up to 29,000 more people to move home each year.”

What’s more, Rightmove reported the cuts mean 33% of all homes for sale in England are now exempt from SDLT, up from 7% before the changes came into effect. 

Prior to the announcement – even amidst the current uncertain economic backdrop – the housing market remained remarkably buoyant, with demand continuing to stay above pre-pandemic levels and 17% above the five-year average according to the latest Zoopla House Price Index. 

House prices growth is also steady, rising 8.7% in September, with an average asking price of £367,760. And average house prices for “second-stepper” homes in particular rose to a new record of £340,513. Rightmove’s Director of Property Science, Tim Bannister, stated  “these numbers suggest that for those who can, moving up the ladder to a home with more space remains a priority, even at a time when personal finances are stretched.”

Unlike the SDLT holiday introduced in July 2020 by then-Chancellor Rishi Sunak which was in place for just over one year, these recent SDLT cuts are permanent. As a result, experts predict we’re unlikely to see the same sense of urgency created among homebuyers, but Bannister said the announcement “is likely to stimulate some more demand.”


What this means for property investors

Residential property in the UK has a history of strong capital growth and the housing market has proved resilient time and again

The recent performance of the market paired with the new SDLT changes and the boost they could provide is positive news for property investors. This is particularly true for those investing via the likes of property bonds, which aid small and medium-sized housebuilders in the delivery of new-build homes at a time when demand is far outstripping supply and new-builds are becoming increasingly appealing for reasons such as their energy-efficiency.

Insurance firm Legal & General revealed their SmartCriteria tool saw a 34% rise in the number of searches for mortgages that take into consideration the EPC rating of a property in June. 

This is one of the ways in which new-build homes can be particularly attractive to homebuyers, with a vast proportion of new-build properties boasting a highly-efficient A or B EPC rating, whilst the average rating on existing homes is D. 

Moreover, reasons such as movers being enthusiastic to swap city living for more rural areas and a need for more space due to a surge in hybrid working – with Zoopla reporting 54% of those who expected to work from home more said they were more eager to move – are keeping demand strong. 

With the SDLT cuts saving existing homeowners up to £2,500 and first-time buyers up to £11,250, it’s likely to be a welcome perk that could spur homebuyers further in their purchases.


Investing in residential property

At a time when many assets are witnessing significant negative impacts due to current market turbulence, it’s positive to see property once again remaining buoyant. 

And as experienced investors search for tax-efficient investments with the potential to generate attractive returns – with it being crucial, now more than ever, that investors ensure their capital is working its hardest – the property-backed IFISA and its target returns often in excess of 7% could prove to be a beneficial addition to a balance and diversified investment portfolio.