How the Stamp Duty cut and Bank of England interest rate rise will affect the housing market

Chancellor Kwasi Kwarteng has announced measures designed to boost economic growth in the UK, some directly targeting the housing market.  Stamp Duty cuts have been announced that will save buyers thousands of pounds. This follows millions of homeowners bracing themselves for increases to their mortgage payments after the Bank of England hiked interest rates to 2.25% this week in an effort to curb inflation. 

Read on for further details about the permanent Stamp Duty tax cuts and the latest Bank of England base rate rise and how you could be affected.

• The Stamp Duty cut doubles the threshold of how much a property has to cost before tax is paid from £125,000 to £250,000.

• First time buyers currently pay zero stamp duty on the first £300,000 and that will be raised to £425,000.

• The value of the property on which first-time buyers can claim relief is increased from £500,000 to £625,000.

• These measures will reduce Stamp Duty bills across the board for all home movers by up to £2,500 with first-time buyers able to access up to £11,250 in relief.

• Stamp Duty tax cuts are permanent and effective from today. They are designed to boost the housing market despite soaring mortgage bills following the rise in interest rates.

• The Bank of England has increased its base rate by 0.5% for the second month in a row. It is the seventh consecutive rate rise since December 2021 and the highest level in 14 years.

• A week ago the cheapest two-year fixed rate stood at 3.79% (80% LTV), and back in January you could still find a two-year fix for less than 1%. Translating that to the money in your pocket, at the beginning of the year it would have cost you £1,130 a month for a 1% mortgage if you borrowed £300,000 over 25 years. Now you would pay £1,549 a month.

• With the speed at which interest rates are changing, it is vital that borrowers looking for a fixed-rate mortgage lock in a deal sooner rather than later. If you’ve got six months or less left on your current mortgage deal, you can secure a new rate now to roll on to when it ends. Many lender offers are valid for up to six months which gives you the option of starting the process earlier and avoiding any further rate rises in the meantime. Leaving your current deal early could incur hefty exit penalties so balance the potential savings in interest rates against any early exit fees.

If you’re hoping to buy, keep a close eye on mortgage rates and if you would like help or advice on buying, selling or renting, please do feel free to contact us.

  Back