A finance expert has warned that homeowners may end up paying bigger monthly mortgage bills after a stamp duty cut.
The Times reported that plans to cut stamp duty are in the pipeline as part of efforts to boost economic growth, ahead of Chancellor Kwasi Kwarteng’s mini-budget on Friday. However, cutting stamp duty would be likely to benefit wealthier individuals most and risk pricing-out first-time buyers.
Stamp duty is paid by buyers of land or property in England and Northern Ireland, with higher rates above certain thresholds. Separate land taxes apply in Scotland and Wales. Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, said potential cuts to stamp duty may risk “doing more harm than good”.
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The expert said stimulating housing market demand could push house prices up further, at a time when the supply of available homes is already tight. She said: "You can see why the Government is concerned about the housing market, because there’s a risk that rising mortgage rates and rising prices will dampen buyer enthusiasm. We know from recent experience that a stamp duty holiday effectively stimulates demand.
"No buyer will ever complain about a tax cut, but if the Government was to cut stamp duty it would mean ignoring the fact that the real brake on the property market is a severe shortage of supply. Stimulating demand without addressing supply problems would risk more buyers chasing a tiny number of properties, which would push prices up. It’s what we saw during the coronavirus-inspired stamp duty holiday.
“By ramping up prices at a time of rising mortgage rates, the end result will be higher monthly mortgage costs, which are going to be increasingly unaffordable. This in itself could be enough to deter buyers, so there’s the risk it could end up doing more harm than good."
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