Rishi Sunak’s stamp duty cut – an effort to keep the pandemic-hit property market afloat – did more harm than good, economists have said.
The stamp duty holiday for properties worth more than £500,000 was introduced by the Treasury to ease the impact of Covid-19 on property transactions. It ended in June, having fuelled a remarkable surge in house prices.
Yet despite the tax break boosting the number of house sales, economists believe that any saving for buyers was mostly subsumed by a spike in house prices.
The average UK house price increased by 10 per cent in the year to May 2021, and 9.7 per cent in England, according to the Office for National Statistics.
That left the average UK property costing £255,000 in May 2021 – £23,000 higher than in May 2020.
In June, Andy Haldane – then the chief economist at the Bank of England – said the residential housing market was “on fire”, increasing the gap between incomes and house prices.
“If you asked the chancellor if he could go through it again, he wouldn’t have done the stamp duty cut, because we have got a surge in housing demand anyway,” Andrew Burrell, chief property economist at Capital Economics, told The Independent.
“This added a spike up and a spike down, at the end, that probably wasn’t needed. You’d have still had strong house prices.”
House prices have nearly tripled in the past twenty years, despite the average salary not yet doubling in the same period.
The average home in Britain is now worth £163,700 more — £106,800 once adjusted for inflation — than it was in 2001, according to research from Zoopla.
The company’s research shows those who bought their home before the financial crash saw a dip in its value between 2008 and 2012, but these losses have been offset by strong price growth since 2013.
‘Race for space’
Prices have risen the most in Kensington and Chelsea in west London, where the average house price is about £1.2 million. Properties in the Royal Borough are worth £739,800 more on average than they were two decades ago.
A pandemic-induced “race for space” led to huge demand for country houses and buyers rushed to meet the stamp-duty holiday deadline in June.
This pushed up prices in the countryside, where property values increased by 3.7 per cent in the three months to June — the biggest quarterly rise in 15 years, Knight Frank, the estate agent, reported.
Nearly a third of home movers surveyed said they were more likely to move to the countryside as a result of the latest lockdown.