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Stamp duty cut unlikely to trigger rush of first time buyers, says Savills

An ascending pile of one pound coins topped by a red model of a house

The recent cut in stamp duty is not likely to result in a surge of purchases by first time buyers, according to estate agency Savills.

Last week Chancellor Kwasi Kwarteng reduced stamp duty for all home buyers, effective immediately. The threshold before stamp duty is paid in England and Northern Ireland was raised from £125,000 to £250,000, and from £300,000 to £425,000 for first time buyers. This doesn't apply in Scotland and Wales, where the transaction tax on house purchases is set by the devolved governments.

Announcing the cut, Kwarteng told MPs: "The steps we've taken today mean that 200,000 more people will be taken out of paying stamp duty altogether."

Analysis by Savills suggests that the biggest beneficiaries of the stamp duty cut are likely to be first time buyers in London and the more expensive parts of South East England, where the savings on offer will make their deposit requirements look a little less daunting.

"However, given a combination of recent house price growth and increases in interest rate raises this is not going to magically result in a surge of first time buyer home buying activity," said Lucian Cook, head of residential research at Savills.

Similarly, a maximum up-front stamp duty saving of £2,500 for other buyers is "relatively small" in relation to the increase in mortgage costs since the beginning of the year -- and as the cut is permanent it is unlikely to bring the same urgency to the market as the stamp duty holiday in 2020-2021.

"The changes will undoubtedly be welcomed by those in the process of buying," Cook added. "But in the short term, they are unlikely to result in a further spate of house price growth and instead are more likely to temper the effect of the wider economic headwinds facing the housing market."

Mortgage availability falls

For those looking to buy over the next few months, the choice of available mortgage products has continued to fall, according to the latest monthly review by Moneyfacts.

The financial information website found that there were just under 3,900 mortgages on offer in September, down by 517 from August.

There are now 1,425 fewer mortgages available than at the start of December 2021, before the first of the recent interest rate rises. And for the first time since April 2020, the number of products offered has fallen across all loan-to-value tiers.

After last month's record low in the average length of time mortgages remained on the market, lenders have extended the availability of their mortgage offerings. The average product shelf life rose to 28 days in September, from just 17 days in August.

However, Moneyfacts pointed out that rather than this being a sign of a more stable mortgage market, when considered alongside the significant number of product withdrawals it may instead be a sign that lenders are tightening and condensing their ranges.

Posted by Fidelius on September 26th 2022

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