Nationwide Building Society has examined what impact the expiry of the stamp duty holiday will have on activity levels.

It predicts a Q1 2025 spike in residential property transactions, followed by a slump in the following quarter.

The Chancellor, Rachel Reeves, confirmed in the Autumn Budget that the temporary increase in the nil rate stamp duty thresholds (in England & Northern Ireland) would expire on 31 March 2025 and revert back to their previous levels, as had originally been set out by the previous government.

After that, for first time buyers purchasing a property of under £500,000, the nil rate band threshold will fall to £300,000 from £425,000 at present, while for other residential buyers, the nil rate band threshold will decline to £125,000, from £250,000.

Main outcomes

“The main impact of the stamp duty changes is likely to be on the timing of property transactions, as purchasers aim to ensure their house purchases complete before the tax change takes effect. This will lead to a jump in transactions in the first three months of 2025 (especially March), and a corresponding period of weakness in the following three to six months, as occurred in the wake of previous stamp duty changes.

“However, the swings in activity are likely to be somewhat less pronounced, in this instance, given that the stamp duty reduction has been in place for some time and its planned expiry was well known. Affordability is also still relatively stretched at present as a result of the higher interest rate environment, which is acting to dampen housing market activity more generally. Nevertheless, determining the underlying strength of the market will become more challenging until this period of volatility passes.

“Data for the year to June 2024 suggests that the stamp duty change will affect around one in five first time buyers, though the impact will vary significantly across the country, largely as a result of the difference in house prices across the UK.

Regional effects

“The largest effects are likely to be in the South East of England, where 40% of first-time buyers paid between £300,000 and £425,000 for their homes, where the change will increase cost of moving for the affected first-time buyers by £2,900 on average. The areas least affected are Yorkshire & The Humber, the North of England and Northern Ireland, where less than 10% of first-time buyers paid between £325k and £425k for their homes. Moreover, as the chart shows, the additional tax paid by affected first-time buyers in these regions will, on average, be lower than in London and the South East.

“The Chancellor also announced an increase in the higher rate of stamp duty for additional dwellings by two percentage points to 5%, which took effect on 31 October. Based on data for the year to June 2024, this would affect around 194,000 transactions, around one in five residential transactions in England & Northern Ireland. We estimate for a typical buy to let purchase, this would add approximately £4,000 to stamp duty costs. Consequently, this may dampen demand in this part of the housing market.”