Andrew Wishart, of the analysis firm Capital Economics, says: “The market reaction to the announcement suggests that mortgage rates of over 6pc are now a distinct possibility, which would leave house prices more overvalued than in 2007.”
The stamp duty saving will help to boost buyers’ deposits because it must be paid upfront, Wishart says. “But it will be nowhere near enough to offset the hit to demand from further rises in mortgage rates. While the consensus is for house prices to flat line, we are increasingly convinced a significant correction is coming.”
In August, new buyer inquiries fell at the fastest rate recorded since April 2020, according to the Royal Institution of Chartered Surveyors, a professional body. Excluding the Covid housing market shut down, this was the biggest drop since the global financial crisis.
In September, GfK’s consumer confidence index hit -49 – the lowest rating on record since the metric began in 1974.
Forecasts of a global housing downturn
The forecasts for house price falls are part of wider expectations of a global housing market downturn, as central banks scramble to tackle soaring inflation.
Earlier this week, Jerome Powell, chair of America’s Federal Reserve, warned that America’s housing market boom would reverse, as the central bank raised interest rates by a further 0.75 percentage points.
Mortgage rates in the United States have already exceeded 6pc. Prices have not fallen yet, but sales have fallen for seven consecutive months. Capital Economics has forecast a 5pc price drop.
The super-hot pandemic-era housing markets are now feeling the crunch across the world. House prices in New Zealand fell by 11pc between their peak in November and July, according to the Real Estate Institute of New Zealand. Capital Economics has forecast a 20pc drop in Canada, a 15pc drop in Australia, and a 10pc to 15pc fall in Sweden – to name a few.
Should the tax cuts have gone further?
Kwarteng’s move roughly brought the nil-rate bands in line with house price growth since they were last changed (the £125,000 nil-rate was set in 2006 and the first-time buyer nil-rate was introduced in 2017).
But the Chancellor did not adjust the higher bands accordingly. Instead, the lowest stamp duty band has been wiped out. This means that the lowest rate is now 5pc, when previously it was 2pc.
Many are underwhelmed by the tax cuts. Matt Henderson, of Strutt & Parker estate agents, is calling for a much larger overhaul.
“A full restructuring of the system is needed in order to further reduce the barriers for first-time buyers entering the market and to create liquidity around downsizers releasing underutilised stock back into the market.”
Richard Donnell, of property website Zoopla, says: “If we are to significantly mobilise the housing market, greater changes are needed to offset the impact of higher mortgage rates.”
Kwarteng should have gone much further, says Hudson.
“We are rapidly moving beyond a point where £2,500 or even £5,000 makes much difference,” says Hudson.
“Stamp duty is a stupid tax, but these changes are slightly underwhelming. A lot of people were expecting something much bigger. The Government estimates these changes will encourage 29,000 more people to move house. That’s almost nothing.”
