Chancellor Kwasi Kwarteng has slashed stamp duty rates, saving the average buyer in England £2,500 in tax on a home purchase.
He has doubled the nil-rate stamp duty band from £125,000 to £250,000 in England and Northern Ireland. This means an extra 200,000 buyers will pay no stamp duty whatsoever.
Assuming that the pre-existing stamp duty bands remain unchanged, Mr Kwarteng’s announcement means that the stamp duty bill on an average £312,000 home in England will fall from £5,600 to £3,100 – a drop of 80pc.
This move means that a third of all homes currently for sale in England are now exempt from stamp duty, according to property website Rightmove.
The changes come into effect immediately, meaning buyers who are completing purchases today should be able to benefit from the tax cuts.
How much will first-time buyers save?
Mr Kwarteng has also raised the nil-rate band for first-time buyers to £425,000.
First-time buyers will be able to benefit from this higher nil-rate band, provided the home they are buying does not cost more than £625,000.
Previously, first-time buyers benefited from a nil-rate band of £300,000, provided the property value did not exceed a cap of £500,000.
The average first-time buyer in England will not save any tax as a result of the changes, according to analysis by estate agency Savills. This is because their typical purchase price of £249,453 was already under the previous £300,000 threshold.
Rightmove found that this change means that 66pc of homes that are currently on the market in England are now exempt from stamp duty for first-time buyers.
The changes to the first-time buyer rates will provide a boost for first-time buyers in London and the South East, where high house prices mean even entry-level purchasers faced significant tax bills.
The average first-time buyer purchasing a home in the capital for £456,307 will save £6,250 in stamp duty under the new threshold, with their tax bill dropping from £7,815 to £1,565, Savills found.
Of the 200,000 buyers a year who will no longer pay any stamp duty on their purchases, 60,000 will be first-time buyers.
What about other buyers?
The Telegraph has campaigned to “stamp out the duty” arguing it restricts and distorts markets. The Centre for Policy Studies, a think tank, has previously argued that any costs to the Treasury from making the tax holiday permanent would be largely offset by the major boost it would deliver to the housing market.
Mr Kwarteng did not announce any changes to the remaining tax bands. Assuming that these rates remain unchanged, buyers will pay stamp duty at a rate of 5pc on the value of a property above £250,000 up to £925,000, 10pc on the value between £925,000 and £1.5m, and then a top rate of 12pc above £1.5m.
For the average home mover (ie, not a first-time buyer) the change will reduce the average stamp duty bill from £7,209 to £4,709 – a saving of £2,500 and tax cut of 35pc, according to Savills.
The previous nil-rate band of £125,000 had been largely unchanged in England since March 2006, despite years of house price growth. Critics of stamp duty have branded it as a “stealth” tax and a major deterrent to moving house because of huge jumps in property values since the bands were last adjusted.
In the two years to July, house prices in England jumped by 23pc, to an average of £311,583, according to the Office for National Statistics. Much of the house price growth in this period was spurred by the stamp duty holiday introduced in the wake of the first national lockdown to prop up the housing market.
Mr Kwarteng did not announce any changes to the additional homes surcharge, which will remain at three percentage points, or to the foreign buyer surcharge, which will remain at two percentage points.
How will it affect the property market?
The permanent overhaul of the tax system announced by the Government is intended to help more first-time buyers onto the property ladder, although experts have warned they must still contend with other headwinds in the housing market, including soaring interest rates.
Lucian Cook, of Savills, said: “Given a combination of recent house price growth and increases in interest rates, this is not going to magically result in a surge of first-time buyer home buying activity.
“Similarly, a maximum upfront stamp duty saving of £2,500 for other buyers is relatively small in relation to the additional annual mortgage costs seen since the beginning of the year.
“The tax cut is also permanent, meaning it is unlikely to bring the same urgency to the market as the recent stamp duty holiday.”
Richard Donnell, of property website Zoopla, warned that little had been done to ease the burden on those buying homes in the middle and upper price bands.
Mr Donnell said: “Stamp duty is starting to resemble income tax, where the more you earn the more you pay, especially if the bands don't move.
“If we are to significantly mobilise the housing market, greater changes are needed to offset the impact of higher mortgage rates – particularly in London and the South East where house prices are highest and where higher mortgage rates will have the greatest impact in 2023.”
Ministers said they will give the devolved governments in Scotland and Wales, which have different bands and rates for their equivalent transaction taxes, funding for property tax cuts to “allocate as they see fit”.
However, despite the stamp duty cut, many banks in England have completely withdrawn mortgage deals for new customers.
In anticipation of a rate rise from the Bank of England, Halifax, Virgin Money and Skipton have all taken the step to temporarily pull their deals and offers.
'We will be quids in for once'
Alastair Case, 32, and his wife Megan, 28, have recently exchanged on a three-bedroom house in Basingstoke and are due to complete next week. They have spent £380,000 on their new home and the stamp duty cuts announced on Friday will give them a welcome boost just when they need it most.
Mr Case said: “I was watching it with bated breath this morning, we will be a little quids in for once.
“We should save £2,500 and that will be very helpful as my wife is heavily pregnant and will soon be off work for a year. It gives us a bit of extra protection from increased energy bills and the rising cost of living.”