Rachel Reeves’ immediate Stamp Duty increase is having an instant effect on mortgage deals, brokers have warned, with one reporting that two deals collapsed within an hour of her Budget announcement yesterday.
The Chancellor yesterday introduced changes to Stamp Duty intended to support first-time buyers and increase revenue for housing initiatives.
Effective immediately, Stamp Duty on second homes and additional properties has been increased by 2 percentage points, now reaching a 5% surcharge.
However, industry insiders have said the snap decision was already having a very real and equally immediate impact on the market.
Jack Tutton, Director at SJ Mortgages, said: “Within an hour of today’s Budget, we have had two landlords withdraw from their purchases despite being close to completion.”
Prospective buyers who were planning to let the property were in general the ones supporting the bottom of mortgage chain, he explained.
Mr Tutton continued: “The decision that Labour have taken today to increase stamp duty for second properties by 2% with less than 12 hours’ notice has, and will, cause many properties chains to fall apart putting the property market on its knees.
“I am sure more will follow, as landlords cannot stomach yet another increase in the tax they need to pay.
“The government is also likely to miss out on a lot of tax receipts as a result of these broken chains and a reduction in housing transactions.”
Similarly, Kelsey Phillips, Head of Specialist Lending at Arose Finance, said: “Within minutes of the Chancellor announcing the additional surcharge, our investor clients were on the phone to estate agents renegotiating purchase prices lower.
“The immediacy of this tax hike will be painful for clients in the middle of completions and may cause some chains to collapse.”
Looking ahead, increasing the levy to 5% would “undoubtedly” restrict investment demand and make buy-to-let “significantly less attractive” to non-professional investors”, Mr Phillips added.
Rohit Kohli, Director at The Mortgage Stop, said: “The less than 24-hours notice is causing chaos across many transactions as landlords are actively considering their options.
“We’re already getting calls from landlords that had been looking to buy asking to know how much extra they need to pay in stamp duty.”
He stressed: “This isn’t just going to hit landlords but many homebuyers who have a buy-to-let or let-to-buy transaction in their chain are also at risk.”
Hannah Bashford, Director at Model Financial Solutions, pointed out: “Having to find an extra 2% on a house purchase overnight is no mean feat.
“The fallout of this being an overnight decision could mean chains fall apart. Clients with let-to-buy applications may find that it is no longer viable to keep those properties and therefore the chain is incomplete and they then need to find a buyer, which will delay purchases.”
Their concerns were echoed by Paul Johnson, director of the Institute for Fiscal Studies.
Writing on X, he said: “I have long said stamp duty is among our worst taxes. So what do we have? An increase for those buying second properties.
“You might think fine: a tax on rich people and landlords. But those looking to rent will pay part of the cost as fewer properties made available. I despair”.
Ms Reeves’ announcement is part of a broader effort to ease access to the property market for first-time buyers, helping an estimated 130,000 new homebuyers over the next five years.
However, the higher thresholds for first-time buyers and general buyers, originally raised in 2022, will revert to previous levels after March 2025, potentially increasing costs for future buyers across the UK.
Speaking in the Commons, Ms Reeves said: “In our manifesto, we committed to reforming stamp duty land tax to raise revenue while supporting those buying their first home.
“This will support over 130,000 additional transactions from people buying their first home, or moving home, over the next five years.”