The housing market since the mini-budget – what’s happened?

The new Conservative Government spearheaded by Liz Truss planned significant fiscal changes to try and improve the UK economy. The announcement of a string of changes became known as the mini-budget and included changes to income tax but also Stamp Duty payable when you purchase property. So, how have Stamp Duty changes affected the UK housing market?

The current UK housing market

The UK housing market has experienced soaring property prices since the pandemic due to lockdowns and people moving away from the cities in a “race for space”. However, due to the post-pandemic inflation and the Bank of England increasing interest rates, mortgages have become more expensive, which reduces property demand and buyers’ borrowing power. This has started to cool a hot market but demand does remain stable.  

The mini-budget and Stamp Duty

The mini-budget announced a change to the rate and application of Stamp Duty on property and land bought in the UK. All buyers are no longer required to pay any Stamp Duty when purchasing a property valued below £250,000. The previous threshold was 50% less at £125,000.

The Stamp Duty reduction looks even more attractive to first-time buyers. Before the mini-budget, first-time buyers didn’t have to pay Stamp Duty on the first £300,000 of their property purchase. The new threshold has increased to £425,000. If the property is purchased for less than £625,000, the first £425,000 will remain stamp-duty free and a rate of just 5% will be applied to the portion above this amount.

Changes to Stamp Duty will affect all types of buyers. Rightmove estimates this means 33% of properties currently listed for sale in the UK are now free from Stamp Duty, which was estimated to be 7% when the Stamp Duty threshold was set at £125,000. Moreover, around 66% of all properties listed for sale in the UK are Stamp Duty free for first-time buyers.

The post-mini-budget housing market

Rightmove has conducted further analyses into how the housing market has reacted since the mini-budget. They have identified a small 1% reduction in house prices and have identified a 12% decrease in the number of property viewing enquiries. This decrease could be due to buyers reassessing their position rather than pulling out of the market altogether.

It’s worth noting that reducing Stamp Duty to stimulate the housing market is in conflict with what the Bank of England is trying to achieve, which has become a theme of the mini-budget. The Bank of England raises interest rates as a way to reduce demand, which in turn reduces inflation. However, the government is implementing changes which can potentially reduce prices and increase demand, which would then facilitate higher rates of inflation.

But the government might not increase demand. During the pandemic, the government introduced a Stamp Duty holiday to try and stimulate the market. However, as some experts predicted at the time, the Stamp Duty holiday actually increased asking prices – and it could happen again.

October 2022