Could lower mortgage payments offset a higher stamp duty bill?

Boxing day is historically the most active day on property search portals. Last year, Rightmove saw a record number of homes listed for sale. There were also the buyers to match; visits to Rightmove doubled between Christmas Day and Boxing Day, with 17% more buyer enquiries than the year before. It follows the seasonal lull in activity over the Christmas period and perhaps the sudden desire to move far away from the family after a contentious Christmas game of charades. This year, there will be another factor that may encourage a surge in buying activity after the seasonal period – the upcoming changes to Stamp duty from April 2025.

From 1 April 2025, stamp duty bands will revert back to their old thresholds. The most-affected group of buyers will be first-time buyers (FTBs), who will see their nil-rate threshold decrease from £425,000 to £300,000. The maximum purchase price for FTB relief will also decrease from £625,000 to £500,000. At the highest purchase, stamp duty will increase by £11,250 from £10,000 to £21,250. Still, it’s worth remembering that only four local authorities across the UK have an average FTB property value this high, all of which are in London. In fact, in 75% of local authorities across th­­­­e UK, the average FTB property value is below the new nil-rate threshold and so would see no change in stamp duty.

Despite not having a widespread impact, in areas where property values are high enough, the increase in stamp duty is significant, particularly for FTBs. The average increase in the affected local authorities is £3,681. Therefore, we could see a surge in FTB buyer activity in higher-value regions such as London and the South East before April as they look to save potentially thousands of pounds.

However, there is more nuance to this decision. While pushing through a transaction before April could save money on the upfront cost of purchasing a property, could greater savings be achieved over the long-run by delaying a move?

Mortgage rates have been decreasing steadily since the peak in summer of 2023 and 75% LTV mortgage rates range between 4.08% and 4.65%, depending on the fixed period. CBRE forecast mortgage rates to continue to fall in 2025 due to further expected cuts in the Bank of England base rate. We expect the average mortgage rate on a 75% LTV product fixed for five years to be 3.90% in Q1 2025, falling to 3.41% by Q4. Therefore, by waiting a few months, buyers could see lower monthly mortgage payments. Over the course of a five-year fixed term, these savings could outweigh the potential stamp duty savings.

The degree to which lower mortgage payments could outweigh the stamp duty savings depends on the value of the property bought. Figure 1 shows the stamp duty savings and potential mortgage payment savings if the average mortgage rate fell to our forecast 3.41%. For properties below a value of £400,000, the savings made over a five-year period exceed the stamp duty savings. This disparity narrows as the property value gets closer to £400,000, above which the stamp duty savings are greater.

Figure 1: Stamp duty savings versus potential savings on mortgage payments

This suggests that if there is a surge in transaction activity among FTBs before April, it will likely be from those buying more expensive properties. At this price point, the greater stamp duty saving far outweighs any incentive to wait for mortgage rates to fall. As a result, this activity will most likely be concentrated within London, where property values are higher. For lower-priced properties, delaying a transaction by six months could save up to £3,500. However, despite a clearer economic outlook, interest rate fluctuations are still expected. The certainty of stamp duty savings may encourage buyers to try to transact before April.

Overall, a spike in sales volumes should be expected, as is historically seen before a stamp duty change. There is some motivation for buyers at lower price points to avoid the rush before April next year, but this will also depend on personal circumstances. FTBs may be willing to sacrifice potential future savings in favour of reducing the upfront costs, which could leave them with funds to furnish their first home. We still expect to return to the long-run average of 1.2 million transactions in 2025.

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