The Chancellor’s rush to raise stamp duty on second homes is to avoid distorting the market, according to a property expert.
From tomorrow, prospective second home owners buying a new residential property will need to pay five per cent on top of stamp duty land tax rates – up from three per cent.
The overnight hike means buyers will need to fork out extra £6,000 for the average priced house.
The reason for the sudden change is to “avoid a cliff-edge in the market,” Jonathan Rolande, founder of House Buy Fast and lead spokesman for the National Association of Property Buyers, told GB News.
“If it were, say, two months ahead to allow current sales to complete, it would also risk temporarily inflating the market as people who otherwise would have bought and sold at their leisure rush to complete the transaction.
“This distorts the market, in effect creating six months of work in two months.
Rachel Reeves has announced an increase to the stamp duty surcharge on second homes
PA | GETTY
“Solicitors, surveyors, and mortgage companies are inundated, and delays may result in a sale beyond the cut-off, causing anger.
“We have seen this in the past with stamp duty holidays that come to an end.
“The Chancellor got this right, although the additional £6,000 tax on an average house will not be so welcome.”
Rachel Reeves said the surcharge hike would help to support over 130,000 transactions by first-time buyers over the next five years.
The stamp duty bill on an additional average-priced (£309,572) property in England today, with the three per cent surcharge, would be £12,265. This would rise to £18,457 from tomorrow, according to calculations by Coventry Building Society. From March 31, when temporary thresholds end, the stamp duty would be £20,957.
Homeowners currently pay stamp duty if the home they buy costs more than £250,000. From March 21, 2025, this will revert to £125,000.
Jonathan Stinton, Head of Intermediary Relationships at Coventry Building Society, said landlords have already been “clobbered” with the three per cent surcharge, and added: “Immediately hiking the Stamp Duty surcharge to five per cent is disincentivising any further investment from current and would-be landlords.
“It’s a significant blow to the sector and, without dramatic housebuilding to improve supply, it could lead to a shortage of rental homes, and push rents up.”
Rachael Griffin, tax and financial planning expert at Quilter, echoed fears the hike could reduce options for renters.
“With fewer buyers entering the market for secondary properties, there may be a slowdown in demand within the buy-to-let sector, which could impact rental availability,” she said.
“In areas where buy-to-let and holiday home markets are strong, this reduction in buyer interest may have knock-on effects on property prices, as reduced demand could moderate price growth in these sectors.”
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Griffin suggested Labour seems to have “missed an opportunity” to look at a broader reform of stamp duty, insisting a “targeted downsizing drive” would have been a “more forward way of thinking, and a more positive approach”.
“This would encourage older homeowners to look at downsizing their proprieties without increased stamp duty costs, which would ultimately free up larger houses for growing families and create more of a balance across the UK house stock,” she said.
The Budget also confirmed that the current uplift in the first-time buyer stamp duty threshold will end as planned from March 2025. It will revert from the temporary £425,000 to £300,000.
Griffin said: “This could result in a rush to buy for prospective first time buyers, though many may find it out of reach given still high mortgage rates.
“For those still considering second-home purchases, careful financial planning will be more important than ever. Buyers may need to weigh the long-term returns on property investment against the heightened transaction costs, particularly if the primary goal is rental income or capital appreciation.
“While this policy shift aims to prioritise primary homeownership and address housing affordability, it also raises new considerations for prospective investors who must now navigate a more costly landscape for property investment.”