The government has warned that cuts in stamp duties will hurt first-time buyers and fuel an inflationary bubble in the property market with home prices rising at the fastest rate in nearly 20 years.
In the latest report detailing the tax cuts favored by Liz Truss, The Times said Kwasi Quarting, the chancellor, was preparing to launch drastic cuts on stamp duties as a “rabbit out of the hat” in his House mini-budget. Commons on Friday.
However, economists and real estate experts said measures to further stoke an already ailing housing market would benefit wealthier individuals and risk pricing out first-time buyers.
It comes less than a year after the expiration of a stamp duty cut used by former chancellor Rishi Sunak during the Covid pandemic, which analysts said mainly benefited London and the southeast and had little effect elsewhere across the UK.
“It’s short-lived at its worst,” said Louis Shaw, founder of Mansfield-based Shaw Financial Services. The move will push home prices higher, exacerbating inflation and increasing pricing for first-time buyers outside of home ownership.
“If someone asked me how an already overheated real estate market was driving an already dangerous bubble territory and making things worse for everyone, this policy would be it.”
Stamp duties are paid by buyers of land or property in England and Northern Ireland, with rates above certain thresholds. Separate land taxes apply in Scotland and Wales.
Reports of a possible downgrade sent shares in British homebuilders higher on the London stock market Wednesday morning, with gains of between 3% and 6% for the FTSE’s Barratt, Persimmon, Taylor Wimpey and Berkeley – among the top performers in the London Stock Exchange. Index of major companies.
Average UK house prices rose 15.5% in the year to July, the highest annual inflation since May 2003, according to official figures.
Many economists consider stamp duty a “bad tax” because it discourages commuting, as it is paid by homebuyers rather than sellers. Many experts have called for sweeping changes to the way property taxes are taxed, including changes to the council tax system.
The stamp duty cut could help offset a potential slowdown in the housing market as the Bank of England raises interest rates, with borrowing costs expected to reach 4.5% next year, adding to the financial pressure on homebuyers.
However, analysts said that without broader reforms, as well as efforts to boost the housing supply, the measure would raise inflation while doing little to benefit those struggling to get up the housing ladder.
“With the cost of borrowing increasing, the market was already looking like it would shift towards higher-income and wealthier borrowers and away from first-time buyers,” said Neil Hudson, a property market analyst. Changes in stamp duties can speed this up by reducing the purchase cost for investors [and] Second home buyers.
The tax cut will also come at a steep price, as the government prepares to launch billions of pounds of tax cuts on business profits, national insurance and a freeze on energy prices. Across the UK, property transaction tax to the Treasury generates more than £15 billion annually.
Truss has argued that moving the economy is her primary focus, as well as the direct impact of her policy measures on the rich or the poor.
Measures to stimulate the housing market can stimulate broader economic activity by increasing the demand for related goods and services such as real estate agents, lawyers, removals, construction trade, furniture and white goods.
However, experts said the launch of a new tax exemption soon after the stamp duty holiday will limit its impact. Besides the rush to move into a larger space during the pandemic, Sunak’s policy spurred a 43% increase in real estate transactions last year.
A report from the Organization for Economic Co-operation and Development this summer found that UK property taxes are outdated and favor the wealthy elite. She said efforts to stimulate economic growth by lowering fees on real estate transactions are raising prices to skyscrapers.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The only reason these holidays are so successful is because people feel they have a small opportunity to cash in, or else they’ll miss it. The point at which they think they can wait for the next one, they’ll start to get less. effectiveness.
“Even if this stimulates demand, it ignores the fact that the real brake on the real estate market is the acute shortage of supply.”
#Stamp #duty #cuts #benefit #UKs #rich #push #inflation