Who is in the mood to buy, even with a stamp duty cut?

Chloe Cheung

Chloe Cheung

Here we are again with another stamp duty cut. Although this time, it’s permanent. Unlike other measures announced in the “mini” Budget, the tax cut has not become the subject of a U-turn – at the time of writing.

According to the Treasury, cuts to stamp duty are expected to “boost spending on household goods and support the hundreds of thousands of jobs in the property industry from removals companies to decorators”.

But as households contend with the cost of living crisis, it is hard to imagine people spending money on all the expenses that come with moving home.

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Indeed, analysis from the Office for National Statistics shows that for those who had seen their cost of living increase, over half (57 per cent) were spending less on non-essentials as a result, using less gas and electricity in their home (51 per cent), and cutting back on non-essential car journeys (42 per cent).

A very different environment

While the stamp duty holiday of 2020-21 drove peaks in mortgage borrowing and property transactions, the tax cut announced in September's “mini” Budget has been overshadowed by concerns over rising interest rates.

And unlike the stamp duty holiday, a permanent tax cut means there is not the same rush to secure a mortgage and get a house move done.

A September survey from the Building Societies Association, taken days after the “mini” Budget and the base rate rising to a 14-year high, found 52 per cent of people did not think it was a good time to buy a property, up from 39 per cent in June.

With lockdown having led to lower discretionary spending, so that some could put down a bigger deposit towards their stamp duty holiday purchase, savings on discretionary spending are now more likely to be going towards rising essential expenses.

Lockdowns during the stamp duty holiday may have also previously fuelled demand for more space both indoors and out, but high interest rates and energy bills are now creating concerns for homeowners over paying the mortgage on their existing home, and being able to keep that home warm.

‘Hokey-cokey’ mortgages

Like the stamp duty cut, there is also a sense of déjà vu in the mortgage market, with lenders withdrawing products, but for very different reasons.

Lockdown saw lenders pull back amid pressures on service levels and valuers not being able to inspect properties in-person, but now volatility in swap rates has caused lenders to exit, reprice and return.

Fixed rate deals are subsequently not what they were, with some products exceeding 6 per cent – a stark contrast to rates that were available below 1 per cent last year.

Displacing the raising of a deposit as the greatest obstacle, affordability of mortgage repayments was cited as the biggest barrier to buying a property, according to two-thirds of people (65 per cent) in the BSA’s survey.