Changes to stamp duty could spark a flurry of activity in the housing market following Labour’s decision not to extend temporary cuts to stamp duty rates, says AJ Bell.
In September 2022, former Prime Minister Liz Truss announced an increase in the nil rate of stamp duty for homebuyers, raising the rate for first-time buyers from £300,000 to £450,000 and from £125,000 to £250,000 for those buying an additional home.
However, Chancellor Rachel Reeves said during her Budget on Wednesday that this would be scrapped from next April.
Laura Suter, director of personal finance at AJ Bell, said: “A cut to interest rates has only just reignited the property market after a period of sluggish sales, but now Rachel Reeves has thrown cold water on its fortunes with a big tax hike for home movers. First-time buyers will be hit the hardest as they see their tax-free band dramatically reduced. At the same time those buying a more expensive first home will no longer be eligible for the stamp duty break.”
Currently, first time buyers benefit from reduced stamp duty rates if they buy a property worth £625,000 or less. It means they pay no stamp duty on the first £425,000 of the value of the property and then 5% on any remainder up to £625,000. However, from 1 April 2025, the property limit to be eligible for the discount will reduce to £500,000 and buyers will only get the first £300,000 of the value of the property stamp duty free.
It means a first time buyer purchasing a property worth £625,000 will face an £11,250 hike to their stamp duty bill from April.
Those buying a second home face a less severe hike but will also see their stamp duty bill rise. Under current rules, the first £250,000 of a property purchase is free of stamp duty, with a 5% duty levied on any amount up to £925,000. However, from April this figure will be reduced to £125,000, with a 2% rate charged from £125,000 to £250,000.
Suter added: “We’ll inevitably see a flurry of people looking to lock in their home purchase before the deadline next March, with estate agents and solicitors braced for some long days ahead of the finish line. We saw a similar story when stamp duty breaks were introduced during the pandemic and then expired, with a boom in house sales ahead of the deadline. This rush to complete in time could push prices up and lead to more competition in the housing market.”
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