BofE Interest cut: Is the Government showing a lack of ‘Joined Up Thinking’?
Following today’s announcement that the Bank of England (BofE) has reduced the base interest rate from 5% to 4.75%, David Hannah, Group Chairman of Cornerstone Tax, argues that this move is crucial to mitigate the effects of recent measures introduced on the UK property market as part of the government’s Autumn Budget. Rachel Reeves’s announcement of a 2% surcharge increase on second homes, along with reduced stamp duty thresholds for first-time buyers to be introduced next year, has come at a significant cost to the property market. These changes are placing heavy financial burdens on first-time buyers, increasing mortgage rates whilst contributing to a long-anticipated collapse in the supply of private rental properties, driving an unprecedented surge in rental costs.
David Hannah, Group Chairman of Cornerstone Tax, comments:
“The decision from the government to lower stamp duty bands shows a concerning deficit of joined-up thinking. Does this Chancellor and Prime Minister not understand that if they want 1.5 million new homes, they cannot drive landlords out of the market, incur additional charges for first-time buyers and freeze up working capital for developers – which can only be available if these homes are selling. I expect stamp duty receipts to fall significantly, then to flatline in Q1 2025, potentially plunging the British property market into a desperate situation. In essence, reducing stamp duty thresholds means that it will ultimately be the consumers who foot the bill.
“Furthermore, it would make sense for the new Government to suspend, or even abolish, the 3% surcharge where properties are being acquired for private rental sector investment. Removing this measure would encourage landlords to increase their holdings, rather than exit the market – reversing the decline in supply of rental homes and potentially expand it to the point where demand no longer outstrips supply.”
Whilst the decision from the BoE should come as welcome news to those with their eyes on Britain’s property market, Hannah holds that more can still be done to stimulate the sector – urging the monetary policy committee to aim for a 3-3.5% base rate in order to stimulate private development, incentivise first-time buyers and restart the private rental sector.
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