- New prime minister set to cut property transaction tax, says report
- UK housebuilder stocks rally hard on likely juiced housing market
- Plan called ‘cynical’ by some experts
UK housebuilders rallied on Wednesday (21 Sep) in response to a report that Friday’s mini-budget may contain plans to cut stamp duty. According to The Times, prime minister Liz Truss will announce the move to drive economic growth in the face of increasing pressure on household budgets.
In early trading, housebuilder stocks dominated the FTSE 100 risers with four of the top 10 largest gains led by Persimmon’s (PSN) 4.8% rally. It was closely followed by Barratt Developments (BDEV) and Taylor Wimpey (TW.), up 3.8% and 3.7% respectively.
Berkeley (BRK) was 2.7% firmer.
On the FTSE 250, Redrow (RDW) was 4.3% higher and Bellway (BWY) added 3.7%. Vistry (VTY), which recently struck a £1.25 billion deal to buy rival Countryside Partnership (CSP), rose around 1%.
GREASING THE WHEELS
Truss believes that cutting stamp duty will encourage economic growth by allowing more people to move and enabling first-time buyers to get on the property ladder, The Times said. It cited two Whitehall sources as saying that cuts to stamp duty were the ‘rabbit’ in the mini-budget, which the government is billing as a ‘growth plan’.
The newspaper claims that the PM and chancellor Kwasi Kwarteng have been working on the plans for more than a month.
Under the current system, no stamp duty is paid on the first £125,000 of any property purchase. Between £125,001 and £250,000 stamp duty is levied at 2%, £250,001 and £925,000 at 5%, £925,001 and £1.5 million at 10%. Anything above £1.5 million levies a 12% rate. For first-time buyers the threshold at which stamp duty is paid is £300,000.
During the pandemic, then chancellor Rishi Sunak lifted the stamp duty threshold to £500,000.
CRITICS START QUEUING
Buyers are unlikely to be unhappy at the prospect of a tax cut, but opinion seems split on whether stamp duty is the way to boost the UK economy.
Neil Wilson, chief market analyst at Markets.com, referred to the potential stamp duty cut as ‘the old Tory trick’ of juicing the housing market in its heartlands to boost confidence (wealth effect) whilst doing not a lot for housing supply.
‘I’m not for concreting over the green belt at all, but there will be questions about the economic soundness of this policy, as there always is. However, with interest rates rising so quickly, an offset to the cost of buying a home would grease the wheels of the market’.
Mark Dyason, founder of the mortgage broker Edinburgh Mortgage Advice, went further, calling a stamp duty cut ‘a very cynical move’.
‘When you need an intervention to prop up prices then the fall when it comes will only get bigger. Leave the market alone and let it find its level. The pain when it comes will get exaggerated by this kind of artificial stimulus.’
‘Liz Truss has said growth will be the key that restarts the UK’s economic engine, which is widely thought to have stalled leaving the economy merrily sliding downhill for the last couple of months,’ said Danni Hewson, AJ Bell Financial Analyst.
‘But growth requires confidence, and the new Chancellor will need to soothe investor’s nerves when he delivers his ‘mini budget’ later this week.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) owns shares in AJ Bell.
