The report of a planned cut in Stamp Duty, to be announced in this week’s Budget, has divided opinion.

Many industry experts have long argued that the tax needs a belt and braces reform, instead of the periodic ‘holidays’ introduced by the government to boost the housing market – the last one during the worst of the Covid-19 pandemic.

The tax breaks usually stimulate demand by removing a barrier to buying, which increases the number of transactions. It’s good for buyers, of course, but also for homebuilders, as well as anyone with an interest in the UK housing market.

However, similar Stamp Duty holidays have also put upwards pressure on house prices, to the extent that the higher prices wipe out any tax savings, making it harder for some people to get on the property ladder.

Even the hint of a cut has sparked huge interest. Analysis by finance company Loan Corp shows Google searches for “stamp duty” went up by 91% in the last week.

The reason Stamp Duty holidays have such an impact, and evoke such strong interest, is because the tax is so expensive.

What does Stamp Duty cost?

Stamp Duty is based on the purchase price (or the value) of any property you buy. Here’s what you’d pay now if you bought:

Up to £125,000 – Zero
The next £125,000 (the portion from £125,001 to £250,000) – 2%
The next £675,000 (the portion from £250,001 to £925,000) – 5%
The next £575,000 (the portion from £925,001 to £1.5 million) – 10%
The remaining amount (the portion above £1.5 million) – 12%

For example, if you buy a house for £295,000, you will pay £4,750.

First-time buyers are exempt from Stamp Duty on purchases up to £300,000, and pay 5% on the portion from £300,001 to £500,000.

Those buying additional properties (landlords and second homeowners) pay an extra 3% on top of the standard rate.

If a Stamp Duty cut is announced it would mean big savings for homebuyers, particularly those buying higher value homes who stand to save the most.

Good or bad move?

Some mortgage experts think the tax cut would be a good move for the market.

Ashley Thomas, director at mortgage broker Magni Finance, said: “At a time when some people are seriously considering holding off moving due to the sudden increase in interest rates over the past six months, the stamp duty relief would offset a significant amount of the higher mortgage costs.

“Not only will it help first time buyers, but if they reduce it across the board, this should encourage movement with properties above £1m. Overall, it is very positive for the property market and perfect timing.”

However many other mortgage and housing experts disagreed. Graham Cox, director of Self Employed Mortgage Hub, argued: “This is yet another last-gasp disastrous attempt to prop up house prices. The last one pushed prices up by well over 10% to all-time record highs. So any saving people made on the stamp duty was more than wiped out by the increase in prices.

“Great for housebuilders and banks, not so great for everyone else. The public, and especially first-time buyers, are being played for fools. House prices are too expensive. That’s it. We don’t need help to buy, stamp duty holidays or any other hair-brained scheme. We just need lower house prices.”

The devil is in the detail, according to Andrew Montlake, managing director of broker, Coreco, who said that another short-term ‘holiday’ would be disastrous while root and branch reform of Stamp Duty would be welcome.

He explained: “Stamp duty as a concept has been ripe for reform for many years and we can only hope that any change will be well thought out and permanent rather than another debilitating “holiday” period that adds further fuel to an already raging fire.

“Whatever the change, in the short-term, property prices usually move up to swallow the stamp duty saving, which helps no one, certainly not first-time buyers facing rapidly rising mortgage rates and cost of living increases. Get it right however, and in the medium to long term we may just see a market with more transactions rather than one where stamp duty acts as a further disincentive to move.”