In the run-up to the UK Government’s Autumn Statement, leading property experts such as Knight Frank and Sir Nigel Wilson, former Managing Director of Legal & General Group, have called for the UK government to re-introduce a stamp duty holiday to help first and second-time buyers and subsequently stimulate activity within the housing market.
However, David Hannah, Group Chairman of Cornerstone Tax – the UK’s leading property tax expert, argues that a return of the stamp duty holiday is only a short-term fix to a long-term problem.
With the Bank of England holding interest rates at 5.25%, Hannah argues that they key issue within the property market that needs addressing is affordability. Both first-time buyers and those already on the ladder are frozen or even having to abandon their plans for homeownership due to soaring mortgage rates.
Also, the continued high rates are forcing property developers to hold off on building, anticipating that affordability issues will mean significantly reduced demand. A reduction in said rates would increase activity in this area, providing a much-needed boost of stock to the market which would tackle the key issue of affordability.
With full-time employees in England now expected to spend around 8.3 times their annual earnings buying a home, as well as housing affordability worsening in every local authority over the last 25 years, the BoE’s decision last week to not reduce interest rates was extremely disappointing.
The decision comes at a time when mortgage approvals have fallen to an eight-month low as more borrowers on fixed-term agreements choose to stay with their existing lenders. In the eighteen months since the hikes began, inflation has fallen from a high of 10.7% to 6.7%, as of September.
Hannah argues that the focus of the MPC ought to be on first-time buyers, urging the BoE to reduce interest rates to at least 4.75% as the property market begins to show signs of recovery and opportunities emerge for those looking to get on the property ladder.
Chairman of Cornerstone Tax, David Hannah said, “A stamp duty holiday is not what is needed to fix Britain’s property market – this would be a short-term fix to a long-term issue of affordability.
“This must be addressed to restore some kind of activity and balance to the market. However, it was disappointing to see the Bank of England’s announcement that interest rates will remain at 5.25% when lowering rates would provide a vital supportive structure to everyone on the property spectrum, from landlords and developers to first-time buyers.
“With the market having already collapsed by nearly 50% and rates staying level, the UK is on track to enter a perfect storm this wintertime in the form of a freefall, with no soft landing expected.
“Whilst the UK’s market conditions are not optimal and with rates remaining level where they are, we hope that there will be some growth in the number of first-time buyers taking their first step on the housing ladder.
“However, if the BoE continues to stay this course in its approach interest rates, the UK’s property market will continue to perform poorly and thwart a new generation of buyers.”