How will the upcoming changes to Stamp Duty impact the housing market?

First time buyers and home movers

During the pandemic period, the Stamp Duty thresholds for first-time buyers were raised to stimulate housing market activity. These are still in place and so first-time buyers (FTB) only start paying Stamp Duty Land Tax (SDLT) on homes costing at least £425,000 and are worth £625,000 or less. However, from 1 April 2025, thresholds will revert to the original levels, which means FTB will be liable for SDLT on homes valued at £300,000 which are worth £500,000 or less.

The impact of these changes will be felt the most by those in London. The average FTB in London will have to pay an extra £6,250 from April, ranging from the maximum increase of £11,250 in eight boroughs, to £2,089 in Barking and Dagenham. In the South East, the average increase will be £225, but in all other regions, the impact, if any, will be small.

This is understandably creating some urgency among FTBs in London, with 51% saying they will try to complete their purchase before the April deadline, according to CBRE’s recent UK Consumer Survey. This was notably higher than the 34% across the rest of the UK.

Figure 1: Proportion of buyers aiming to complete purchase ahead of SDLT changes in April

These findings have been reflected in market data too. In London, the number of FTBs taking out a mortgage in Q4 2024 was 21% higher than the average for the same period from 2017-2019. This was the greatest increase of all regions. Lower interest rates would also have contributed to this, but those in London certainly have had the greatest motivation to complete a transaction ahead of April.

Figure 2: Number of mortgaged FTB purchases, Q4 2024 vs 2017-2019 average

Home movers will also have to start paying SDLT on homes valued at £125,000 and over (down from £250,000 currently). However, given the lower potential cost increase (at a maximum of £2,500), this buyer segment will be less affected. The maximum increase in SDLT for home movers can be expected to be felt in just four regions (London, South East, East, and South West). Home movers in the North East will see the lowest increase, of just over £700.

Investors

The Autumn Budget also increased the SDLT surcharge for second homes from 3% to 5%. This would add an additional £5,800 of SDLT to the average property across England for second-home buyers. Unfortunately, it’s likely that this will deter some landlords from the market.

Overall, demand from property investors has dampened over the last decade. The number of buy-to-let mortgages taken out has declined from 117,500 in 2015, to just 62,500 in 2024, a fall of 47%. This has been the result of several measures, including the introduction of the original SDLT surcharge in 2016, the phasing out of mortgage-cost relief from 2017, and now this additional cost.

The impact of this latest hike is also reflected by potential investors in our Consumer Survey. Of those who were planning to buy an investment property, over two-thirds say they now won’t be because of the additional surcharge.

Figure 3: How has the additional 2% stamp duty surcharge on second homes impacted investment plans?

Investors in London will have to pay an extra £11,000 in SDLT, based on average property values. In comparison, those in the North East will be paying just £3,200 more.

The additional surcharge will also apply to overseas investors. This will be on top of the 2% surcharge that’s already levied on non-UK buyers, taking the total surcharge for overseas investors to 7%, compared with 5% for domestic investors. Overseas investors into the UK are largely concentrated in London but represent a key component of that market. Around one in five new homes in London has been sold to an overseas buyer over the last three years. They have been a consistent source of sales and therefore supplier of rental homes in the capital.

But the impact of the additional surcharge on overseas investors depends on how it affects the relative competitiveness of London in a global context. Overseas investors will also consider other costs (such as capital gains tax) when making their investment decision and weigh them against other potential investment locations.

Even with the new surcharge, the total cost of buying and selling prime property in London is still lower than the likes of Singapore, Tokyo, and New York. Therefore, while property investment in London may now incur a higher entry cost, the fundamentals of London’s property market will likely outweigh this and prevent a significant fall in demand from overseas investors.

Furthermore, actions taken by other countries could divert demand to London. For example, Australia, Spain, and Canada have all recently introduced extremely punitive measures to limit overseas buyers in their property markets.