Chancellor Kwasi Kwarteng confirmed a cut in stamp duty as part of his mini-budget on Friday to encourage economic growth by allowing more people to move and enabling first-time buyers to get on the property ladder.
At present, there is no stamp duty to pay on the first £125,000 of a property's value. This will be doubled to £250,000.
The threshold for first-time buyers will be increased from £300,000 to £425,000. The value of the property on which first-time buyers can claim relief will be raised from £500,00 to £625,000. This will be a permanent cut, the chancellor said.
There will be plenty of people going through the sales process right now, who will be delighted to have accidentally saved thousands of pounds. And while we can all celebrate saving money, it begs the question of whether this has been particularly well targeted.
We can expect house prices to get a boost from this change, as it persuades more buyers to take the plunge.
The problem is that pushing up prices will make monthly mortgages less affordable, so there’s a risk that cutting stamp duty could do more harm than good.
Raising the threshold to £250,000 means that a third (33%) of all homes currently for sale are now completely exempt from stamp duty in England (up from 7% when the threshold was £125,000), according to property site Rightmove.
Two-thirds (66%) of homes are also now exempt from stamp duty for first-time buyers in England.
Rightmove’s housing expert Tim Bannister said: “Demand has been softening over the last few months but today’s announcement is likely to stimulate some more demand.
“If it does lead to a big jump in prospective buyers competing for the constrained number of properties for sale then it could lead to some unseasonal price rises over the next few months.
“But because the change is permanent, and because of gathering headwinds such as rising mortgage rates, we expect to see a more gradual increase in demand compared with the surge when the temporary stamp duty holiday was announced in 2020.
“Plus, buyers could save up to £15,000 during the temporary stamp duty holiday, while the savings are lower with this change.
“The first-time buyer threshold change means we could see more first-time buyers who can afford it making a jump to a bigger home as their first move.
“With more buyer demand we would also expect that the current trend of more properties coming to market will continue, offering more choice for buyers.”
Within an hour of the announcement traffic to Rightmove jumped by 10%, according to the property site.
Jonathan Burridge, founding adviser at hybrid mortgage adviser, We Are Money said: "The housing market doesn't need to be artificially supported. We have seen eye-watering property price inflation for years.
"Stagnation rather than inflation is what we need. The stamp duty holiday proved to be unnecessary and actually fuelled the housing problem and again the government has stepped in to address an issue that hasn't yet arisen.
"It is a short-term move that will only add to the problems faced by people trying to buy a home."
Richard Donnell, executive director at Zoopla, said: "The reforms do little to reduce the burden for those at the middle to upper price bands, which account for almost half of property sales.
“Stamp duty is starting to resemble income tax, where the more you earn the more you pay, especially if the bands don't move.
“If we are to significantly mobilise the housing market, greater changes are needed to offset the impact of higher mortgage rates — particularly in London and the South East where house prices are highest and where higher mortgage rates will have the greatest impact in 2023."