UK Government Announces Stamp Duty Cuts and Overhaul of Planning Laws

As part of a mini-budget to boost the economy and provide relief to homebuyers, the UK government has cut stamp duty on property purchases. The aim is to allow more people to become first-time home buyers and boost the real estate market by encouraging upgrades and moves. With inflation in the UK at an all-time high in 40 years, industry insiders welcome the move; however, some financial experts don’t.

New Stamp Duty Laws

In his mini budget address on the 23rd of September, the UK chancellor confirmed stamp duty cuts to “help families aspiring to own their own home”. The current system says there is no stamp duty to pay on the first £125,000 of a property’s value, but the threshold has now doubled to £250,000. Additionally, he said, “First-time buyers currently pay no stamp duty on the first £300,000; we are increasing that threshold to £425,000.”

The third change is the threshold for the first-time buyer’s relief scheme. This is currently set at £500,000 and the chancellor has increased it to properties that cost less than £625,000. Overall, with the new stamp duty changes, home buyers can save up to £2,500. In addition, first time buyers can access relief of up to £11,250.

What is Stamp Duty?

House or land buyers in England and Northern Island pay stamp duty on purchases over a specific value. Previously, this was 125,000 GBP unless the buyer qualified for first-time buyers’ relief. The stamp duty tax was paid regardless of whether you purchased with a mortgage and applied to freehold and leasehold properties. Additionally, there were several bands of 2% between £125,001 and £250,000 and 5% between £250,001 and £925,000. Sales between £925,001 to £1.5 million incur 10%, and the tax hits 12% over that amount. However, if you buy a second home valued at over 40,000 GBP, you pay an extra 3%. This affects buyers looking at holiday homes or property owners investing in buy-to-let properties.

How Does Stamp Duty Affect Housing Markets

We need only look at the last stamp duty cut to see how it affects housing markets. During the COVID pandemic, house buyers did not pay stamp duty on the first £250,000 of a house sale. Such was the success of stimulating the market; the government extended the stamp duty relief holiday. It seems that todays announcement is a replica of that move.

The UK Housing Market

Currently, demand is outstripping supply in many areas, and this drastically affects house values. This was partly due to the Bank of interest rates, which were considerably low, driving more people to seek mortgages. This is where financial advisors say that the stamp duty cuts will create more demand, pushing house values even further. They say the government ignores the real problem: a lack of supply. They say current regulations will force prices out of the reach of first-time buyers.

However, in his mini budget update, the UK chancellor announced an overhaul of planning laws to stimulate infrastructure. The chancellor told MPs: “Our plan for major infrastructure is too slow and fragmented and getting slower, not quicker; we have to end this.” The new approach will streamline assessments, appraisals and consultations, end duplications” and “unpick patchwork of planning restrictions and EU-derived laws.” Kwarteng Kwarteng also announced there would be no stamp duty on land purchases with the intended use of commercial or new residential properties.

Bank of England Interest Rates

Amid the speculation, the Bank of England raised the interest rate from 0.5% to 2.25% yesterday. The move shocked many who were expecting a rise to 0.75%. This sparked concerns about mortgage payments, although industry insiders pointed out that 75% of UK mortgages are currently on a fixed rate between 2 to 5 years. However, those living on variable rates will see a dramatic increase in the cost of living.

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