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How will the change in stamp duty affect me as a first-time buyer?

  1. 19 December 2017
  2. By Nick Perman

Unless you’ve suffered a news blackout or been away on holiday in recent weeks, you would have been hard-pressed to miss the announcement about stamp duty for first-time buyers in the recent Budget.

In an effort to help more young people take their first steps on the property, Philip Hammond announced in his Budget speech plans to immediately abolish stamp duty for first-time buyers purchasing homes worth up to £300,000.

What’s been introduced?

Stamp duty will be removed immediately for first-time buyers purchasing homes worth up to £300,000. Meanwhile, buyers in London or other pricier areas will pay no stamp duty on the first £300,000 of the cost of homes valued up to £500,000, with the remaining cost incurring a 5% charge.

As a result, it’s said that 80% of first-time buyers will now pay no stamp duty, while overall 95% of first-time buyers will benefit. 

How many first-time buyers will it affect?

Despite the headline-grabbing nature of the cut, there have been suggestions that only a small number of people will actually profit.

The Office for Budget Responsibility (OBR) said Hammond's centrepiece policy will only aid 3,500 buyers and could have the unintentional consequence of increasing house prices across the country.
For a first-time buyer purchasing an average priced home, the stamp duty cut equates to a saving of £1,600 – but some critics have suggested that the government’s move will merely inflate high house prices and make it more difficult than ever for first-time buyers to purchase.

Generation Rent – the campaign group which represents private renters – welcomed the policy, saying it will give first-time buyers greater purchasing power in those areas where they are competing with investors. However, the group also said the move will do nothing to make housing more affordable, one of the main concerns of first-time buyers throughout the UK.

Will the change actually make a difference?

While first-time buyers may have been cheering Hammond’s big reveal, far from everyone was impressed.

The Resolution Foundation, a think tank established in 2005, argues that house prices will rise by more than the saving made on stamp duty. It says the stamp duty cut will cause the average house price to rise by £3,200, double the average saving that the cut is predicted to deliver.

“The stamp duty (cut) for first-time buyers will actually increase the price of properties by twice the size of the tax cut,” it said. “As such prospective first-time buyers’ net costs will actually increase not decrease.

It added: “In reality, a first-time buyer purchasing an average priced property would experience a £3,200 price increase to offset the £1,600 tax cut.”

Buyers purchasing cheaper properties would, though, be likely to save more in stamp duty than the additional money they’ll have to pay in inflated house prices. What’s more, the government’s measure means that a greater proportion of a buyer’s savings can go towards the all-important deposit, which is likely to increase the number of people who can afford a home.

First-time buyers with smaller deposits are also likely to benefit, according to the OBR, although they’re also likely to be paying more for their properties. Small deposit buyers tend to be restricted by loan-to-value lending criteria, but they would be offered a boost by the policy, allowing them to borrow a multiple of their stamp duty saving to purchase properties that they otherwise wouldn’t have been able to afford – but they would end up paying more in the long-run.

Will there be further stamp duty cuts?

The stamp duty cut for first-time buyers hasn’t stopped the numerous calls for the removal of stamp duty – or a stamp duty holiday – for other types of buyers. The calls have been loudest for elderly buyers looking to downsize. Removing the stamp duty barrier, some say, would encourage more elderly homeowners to downsize, in turn freeing up extra stock for first-time buyers or those looking to trade up.

What did the industry say?

Mark Hayward, chief executive of trade body NAEA Propertymark, said of the measure: “The announcement to abolish stamp duty for first-time buyers will have a positive impact on the market. It’s a smart move to ensure the dream of homeownership for young people can become a reality and will help buyers across the UK, including London and the South East where property prices are higher.”

Simon Gerrard, managing director of Martyn Gerrard and a former president of the NAEA, said: “While on the surface stamp duty exemption for some may seem like a gift, it fails to consider the fact that second steppers, who will be moving out of the homes first time buyers wish to live in, are in exactly the same situation. If they aren’t moving out and up the chain, then what are these first-time buyers going to purchase?”

Meanwhile, Doug Crawford, chief executive of My Home Move, added: “The Chancellor has pledged to make the dream of home ownership a reality for all generations, and scrapping SDLT for first-time buyers will undoubtedly be welcomed whole-heartedly by those struggling to get onto the property ladder.”

“However, Britain needs to build, and while a new funding package for UK property development is a stride in the right direction, it will only help tackle our housing crisis if it is invested in the right places.”

Overall, then, the government’s landmark housing announcement has been met with mixed reviews and whilst first time buyers are celebrating, others are left wondering what impact the Stamp Duty exemption will have on the market.

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