Buyers are unlikely to be unhappy at the prospect of a tax cut, but if the Government chooses to cut Stamp Duty in an effort to stimulate the housing market, there’s a risk it could do more harm than good.
It’s easy to see why the government is concerned about the housing market. We’ve seen demand fall consistently since May, when rocketing bills, rising house prices and ever-increasing interest rates started to take a toll on buyer enthusiasm.
There’s a risk that if rate rises accelerate, pressure on buyers could reach a tipping point, where demand dries up.
We know from very recent experience that a Stamp Duty holiday can stimulate demand. However, the only reason these holidays work is because people feel they have a small window of opportunity to take advantage, otherwise they’ll miss out.
The point at which they think they can just wait for the next one, they will start to become less effective.
Even if it does stimulate demand, it overlooks the fact that the real brake on the property market is a severe shortage of supply.
With an average of 36 properties on each agent’s books, we’re still close to an all-time low in the availability of property for sale. Driving demand without addressing supply would risk more buyers chasing a tiny number of properties, which would push prices up.
By ramping up prices at a time of rising mortgage rates, the end result would be higher monthly mortgage costs, which would be increasingly unaffordable.
And the Stamp Duty holiday wouldn’t help on this front. This in itself could be enough to put buyers off, and if it deters enough of them, it could end up having the opposite impact to the one that’s intended.
Sarah Coles is senior personal finance analyst at Hargreaves Lansdown