The Effects Of Stamp Duty Cuts On The UK Housing Market

Amidst a controversial mini-budget, the UK’s new Chancellor has permanently increased the threshold for Stamp Duty from £125,000 to £250,000 as part of a wider plan to stimulate the economy. The decision has had mixed reactions and predictions, shifting buyers further into a state of uncertainty with regard to the future of the UK market.  

For international investors, there’s a tempting opportunity to take advantage of favourable exchange rates with the British Pound. It’s vital, however, that the broader perspective is not lost when making such decisions, particularly regarding the fundamentals of property investment, such as location, transport links, and green space, in addition to the short-term economic fluctuations.   

For those considering buying property in the UK, it’s important to understand how the Stamp Duty cuts will impact the housing market and future yields. Here are 3 key effects of the change: 

Encouraging First-Time Buyers

First time buyers in London and affluent areas in the south of England will be most affected by the stamp duty cuts. The threshold for first-time buyers has increased from £300,000 to £450,000, encouraging them to take the leap. First-time buyers can also now claim stamp duty relief from £500,000 to £625,000, facilitating access to properties in zones 3 and 4 of the capital where corporate tenants often live. 

Dominic Agace, chief executive of Winkworth estate agents, has said, “Some big and welcome changes initiated with a long overdue reduction of the extremely negative stamp duty, which hopefully now will allow a better functioning housing ladder. It is vital we get new buyers on the ladder.” 

Other industry leaders agree but are also still concerned about the macro economic environment. Sheldon Cole, managing director of letting and property agency Holland Properties said:

“It is great for the youth to get out of rent and own their first property and it certainly will take the pressure off the rental market. It will slow the price increase for properties above the £450,000 bracket. Regarding the stamp duty cut itself, it is almost like your deposit saving has gone up by £24,000 for people in areas where the average house price is above £250,000. However, I am not sure how this can help with inflation. To reduce inflation, we need to stop printing money and help people spend less, with this incentive I believe we will see an increase in property acquisition." 

Realistically, the nature of the cuts being permanent is unlikely to spur a sense of urgency amongst first-time buyers, however, the hope in the long-term is for a more stable demand, particularly in London and surrounding areas. 

Prolonging the Property Boom

Demand for property in London and other affluent areas in the south of England has been dwindling since the start of this year, which led to the decision to cut stamp duty in the hope of reigniting demand. With first-time buyers motivated to purchase, it’s hopeful that we will see a readjustment of the currently volatile asset values, and a resilience of property values in the short-term in the face of a recession. 

Yields Dropping Despite Increasing Rents in the Capital

With increased interest rates, the rental yield for buy-to-let landlords is declining, and investors are turning to areas outside of the capital where there are higher yields.  

Estate agent Hamptons International said:

“London-based investors are increasingly purchasing buy-to-lets beyond the capital, targeting higher yielding areas. So far this year, a record two-thirds (66 per cent) of London-based investors chose to purchase a buy-to-let property outside the capital, up from just 26 per cent a decade ago.” 

The news on stamp duty will see some of the top-end renters transition to buyers, enabling some current investors to sell in the second-hand market, stimulating activity.  

Since the end of February this year, we’ve seen the rental incomes within our asset management portfolio at InvestEight increase between 15% and 33% as workers return to the city post-pandemic.   

Advice from Invest8  

Although tempting to invest with GBP while exchange rates from HKD are so favourable, our advice at Invest8 is always to stick to the strong fundamentals (location, transport links, proximity to green space etc.) rather than running with the herd into targeted overseas investor schemes.  

There is a huge opportunity in real estate across the UK but we are urging investors to consult experienced professionals before taking the plunge into investment-led schemes, particularly during this financially uncertain time.    

Our two focuses during this period will be to find safe and secure new build assets in popular residential boroughs of zones 1-3 in London where the stamp duty cuts benefit most.  

We will also target prime urban regeneration projects where the demand vs supply is in severity and is attached with green initiatives as well as linked to new communities. 

For bespoke advice, or to speak more about opportunities to invest in the UK property market, email me at freddie@invest-eight.com