Homebuyers will not pay stamp duty on purchases up to £500,000 until 31 March, under the changes announced yesterday by Rishi Sunak.
The measure is widely expected to stimulate demand in the short-term.
First-time buyers had already benefitted from a threshold of £300,000 before they paid stamp duty, meaning this will be more of an incentive to movers, as well as investors.
However, there are fears that after an initial boost, the market could suffer.
Will Scoular, head of private client lending at Investec, said: “We must be cautious that the removal of the support in March next year could cause transaction volumes to stall again, creating somewhat of a delay in the impact of the crisis unless permanent reform is introduced.
“Meanwhile, unchanged stamp duty rates for homes worth more than £500,000 will continue to put the brakes on transactions and reduce the overall tax take.”
Lenders need to come back to 95 per cent LTV
The real difference for first-time buyers will be if lenders make a meaningful return to the market at 90 and 95 per cent LTV, critics suggested.
Martijn van der Heijden, chief of strategy at digtal mortgage broker Habito, said: “UK lenders are still withdrawing or heavily restricting the availability of lower deposit mortgage deals.
“This means that many would-be buyers looking to take advantage of this tax holiday will still struggle to get approved for the mortgage borrowing required to buy a home.
“Though some buyers who had budgeted for the tax could now use the saving to increase their deposit funds, many still won’t be able to buy unless these 90-95 per cent products make a return.
“Increased access to higher-value lending, to reduce the size of the deposit required, would be a very meaningful area of focus for lenders and the Treasury, when it comes to first-time buyers right now.”
Kevin Roberts, director, Legal & General Mortgage Club, welcomed the stamp duty cut but agreed that lenders needed to “step up”.
He said: “These are still uncertain times and there will still be challenges for consumers, namely ensuring that they have access to the mortgages they need to move forward with their plans.
“Independent mortgage advisers will be on hand to help first-time buyers understand their options, but we would also encourage lenders to step up and return to offering the higher loan-to-value mortgages on which many of these buyers rely.”
Help to buy extension preferable
Many critics were disappointed not to see an extension of the Help to Buy scheme as the chancellor’s tonic of choice for the market.
Jan Crosby, UK head of infrastructure, building and construction, KPMG, said the housing market has bounced back after lockdown fuelled by pent-up demand.
Crosby added: “The stamp duty cut may therefore not have been needed.
“More important is providing longer term clarity on help to buy, unlocking funding for SME housebuilders to play their part – many of whom have not been supported through CBILS and accelerating the provision of affordably priced key worker family accommodation across the country.”
Jeremy Duncombe, director of intermediary distribution at Accord Mortgages, echoed the sentiment and said raising the stamp duty threshold to £500,000 “will not ‘fix’ the market”.
He added: “There are a number of other measures which need to be given further thought and consideration by the government to make a longer term difference to those wanting to secure their own home.
“An extension to the current Help to Buy scheme which would allow for more borrowers, both first-time buyers and home movers to take advantage of the scheme would be a real boost to the industry.
“With the deadline for the current scheme looming, the delays to building work caused by the pandemic is threatening to exclude many home movers from accessing the financial support this initiative offers.”
Duncombe also suggested a review of the mortgage stress testing measures is needed.
He said: “To support more first-time buyers, a review of the current stress testing measures could make the shift from renting to owning more accessible for those who have a proven track record of meeting monthly rental payments.”