Leeds Building Society boss warns stamp duty cut will make housing crisis worse

Government plans for a stamp duty cut will make the nation’s housing crisis worse, the chief executive of Leeds Building Society has warned.

The Times has reported that a stamp duty cut is expected to be included in Friday’s Mini-Budget from new Chancellor Kwasi Kwarteng.

Stamp duty raised around £12bn per year for the Treasury. Under the present system, for first-time buyers the threshold for paying it is £300,000 but for other purchases payments begin after £125,000.

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Liz Truss is said to believe a reduction in stamp duty will aid economic growth but Richard Fearon, chief executive of Leeds Building Society, raised concerns about the idea.

A cut to stamp duty is reportedly being planned by Liz TrussA cut to stamp duty is reportedly being planned by Liz Truss
A cut to stamp duty is reportedly being planned by Liz Truss

He said: “Cutting stamp duty rates across the board would simply be yet another short-term quick fix that ultimately will make the housing crisis worse, not better.

“The Prime Minister and Chancellor rightly want to prioritise growth. But they should deliver that in a much more sustainable way by investing in building enough houses, not funding widespread stamp duty cuts.

"Using the tax system in this way will pump up house prices, which will only exacerbate the problems faced by first-time buyers.

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“Governments have successively resorted to quick-fix solutions to increase demand rather than address the structural flaws in the housing market and ensure there is enough supply.

“We must wean ourselves off an approach determined by the electoral cycle and set out a long-term plan to help aspirational homeowners and also the economy.”​​​​​​​​​​​​​​

Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown and a regular columnist for The Yorkshire Post, said potential cuts to stamp duty may risk “doing more harm than good”.

She said stimulating housing market demand could push house prices up further, at a time when the supply of available homes is already tight.

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Borrowers could then find themselves paying higher monthly mortgage costs if the price they have had to pay for their home has increased.

Mortgage rates are already on the rise and the Bank of England is expected to hike the base rate further on Thursday, pushing borrowing rates higher.

Ms Coles 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.

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“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.”

A stamp duty holiday introduced by former chancellor Rishi Sunak came to an end last year. Spikes in demand were seen during the holiday as buyers rushed to maximise their savings.

According to the most recent Office for National Statistics (ONS) figures, the average UK house price leapt by 15.5% annually in July, marking the biggest increase in 19 years.

The average UK house price was £292,000 in July 2022, which is £39,000 higher than at the same time last year.​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​

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