Article | Creating Resilience

Will the changes to Stamp Duty offset the recent rise in mortgage rates?

December 5, 2022 5 Minute Read

By Michael McGill


Following consistent increases in the Bank of England Base Rate, mortgage rates have risen considerably. According to Moneyfacts the average two-year fixed rate was 6.35% in mid-November, 200bp higher than it was at the start of September. This has resulted in a significant increase in mortgage costs for both first-time buyers (FTBs) and those coming to an end of a fixed-term mortgage. For the average FTB property price in England of £261,000, this would take the monthly mortgage repayment from £1,270 to £1,562, an increase of £293*.

More positively, the changes to Stamp Duty Land Tax (SDLT) announced at the same time, and reaffirmed in the 2022 Autumn Statement, will provide some financial savings by reducing the transaction cost of buying a home. The three changes to SDLT, which will be in place until March 2025 are:

  1. The threshold at which buyers need to start paying SDLT has increased from £125,000 to £250,000
  2. For FTBs, the threshold has been increased from £300,000 to £425,000
  3. The total value of the property that FTBs can claim SDLT relief on has risen from £500,000 to £625,000. Anything above this value would still be subject to the standard Stamp Duty charges

With the new SDLT threshold, a home purchase of £250,000 would see SDLT cut from £2,500 to zero. This saving would offset 7.1 months of the increase in mortgage repayments (at current interest rates) on the home, which have increased from £1,530 to £1,883. FTBs could potentially see much larger savings. A FTB purchasing a £625,000 home would see their SDLT cut from £21,250 to £10,000, a saving of £11,250. This would offset the higher mortgage payments, which would increase by £701 on a home of this value, for over 30 months.

However, while higher mortgage rates will affect all buyers, the stamp duty savings will vary due to regional differences in prices. Given the higher home prices in the South, most home movers there would save the maximum £2,500 on SDLT. In contrast, lower average values in the North of the country translates into a lower saving. A buyer in the North East, for example, will save an average of just £531 on their SDLT (0.4% of the average property value in the North East). In comparison, the SDLT saving would make up 0.9% of the property value in the East and West Midlands.

The changes to the FTB SDLT rates are almost irrelevant outside of London and the South East. The original threshold of £300,000 already gives FTBs complete exemption from SDLT in 72% of local authorities across England.

The maximum saving that FTBs could make based on the new rates are £11,250, if they were purchasing a property with a value between £500,000 and £625,000. There are only a handful of London boroughs, where the average FTB property value is above this. Outside of London and the South East, there are effectively no SDLT savings to be made since the vast majority of FTBs purchase a home below £300,000.

Figure 1: Average SDLT saving for home movers


Source: CBRE, ONS

Figure 2: Average SDLT saving for FTBs


Source: CBRE, ONS

Reductions in SDLT are designed to stimulate housing market demand, and the Stamp Duty holiday between 2020 – 2021 was incredibly effective at doing this. However, the latest changes to SDLT are far less likely to have any sort of similar impact, as it will be outweighed by the heightened cost of borrowing and wider inflationary outlook. Still, some FTBs who can capitalise on the maximum saving of £11,250 will be able to use this to soften the blow of increased mortgage rates.

To stimulate broad demand in the market, changes to SDLT would be better served by having a greater focus on aiding existing owners. The reason why many households are taking longer to make their next move is the large cost associated with moving. Providing greater SDLT relief to this cohort of the market will help release up stock for FTBs and have a larger impact on the overall market.

To calculate the stamp duty you will have to pay when buying a property in the UK, use our stamp duty calculator. For buy-to-let property purchases, use our buy-to-let stamp duty calculator.

*Calculations based off an increase in mortgage rates from 4.24% to 6.35%, on a 90% LTV mortgage with a term of 25 years