Stamp Duty abolition for first-time buyers will stoke up house prices – Government’s own economists warn

The abolition of Stamp Duty for first-time buyers up to £300,000 was one of the flagship policies of the Budget, but even the Government’s own independent fiscal watchdog has cast doubt on its effectiveness.

Chancellor Philip Hammond ended Stamp Duty for first-time buyers purchasing properties up to £300,000 and in high-priced areas on the first £300,000 of houses worth up to £500,000.

Hammond said that 80% of first-time buyers would now pay no Stamp Duty.

But the Office for Budget Responsibility has warned that the effect will feed through into house prices “relatively quickly”. It is forecasting a rise in house prices of 0.3%, and says that the main beneficiaries will be existing home owners, not first-time buyers.

A report on the Budget announcements by the economists said: “Since the relief frees up first-time buyer savings to put towards higher deposits, these higher prices can be paid.

“We assume that a temporary relief would feed one-for-one into house prices, but a permanent one will have twice that effect.

“On this basis, post-Stamp Duty prices paid by first-time buyers would actually be higher with the relief than without it.

“Thus the main gainers from the policy are people who already own property, not the first-time buyers themselves.

“For some potential first-time buyers with smaller deposits, who are constrained by loan-to-value lending criteria, the relief will enable them to borrow a multiple of their Stamp Duty saving, allowing them to buy properties that they otherwise could not afford – but more expensively.”

This view was echoed by Rightmove director Miles Shipside, who advised first-time buyers to act before prices rise.

He said: “First-time-buyers should think about acting quickly to take advantage of this Stamp Duty ban, before the extra demand it creates pushes up prices and starts to eat away at the extra cash this Stamp Duty exemption will free up.

“The Government has already put buy-to-let landlords on the back foot with its 3% Stamp Duty surcharge, so this extra advantage of no Stamp Duty gives first-time buyers an extra edge.

“Speed and getting in early is important for aspiring first-time-buyers because supply of suitable properties is limited due to insufficient numbers of new-build property in this sector over the last decade.

“To take advantage of the initial momentum this will generate, owners of properties that are suitable for first-time buyers should think about coming to market if they have been thinking about making a move up the ladder themselves.”

Legal experts are also warning joint buyers to be careful as the briefing paper released alongside the announcement states that all buyers in a joint purchase would need to have not owned property anywhere in the world to be eligible.

Nimesh Shah, a partner at Blick Rothenberg, said: “Watch out joint buyers – both need to be ‘first time buyers’ to qualify for the cut. If one has previously had an interest in a property, they will not be eligible. A person coming to the UK will not be eligible for the cut if they have previously owned a property anywhere in the world.”

Conveyancing software provider SearchFlow also highlighted the regional differences that will emerge.

Carole Marsden, UK sales director for SearchFlow, said: “The changes to Stamp Duty Land Tax will apply immediately for first-time buyers in England, Wales and Northern Ireland, although the Welsh government will decide whether to continue it when stamp duty is devolved in April 2018. In addition, the update will not apply in Scotland unless the Scottish government decides to follow suit.”

There were mixed responses from agents.

Paul Smith, chief executive of haart, suggested this should inject a “feel good factor” into the market and said he was anticipating a surge in activity.

But while Glynis Frew, chief executive of Hunters Property, welcomed the move, there was also disappointment at the lack of support for all levels of the market.

Frew said: “First-time buyers, downsizers and landlords have all suffered due to this extortionate cost, and sadly, small developers have been hit particularly hard by the 3% second home levy.

“Aspiring and ambitious home owners need to be given the freedom not only to leap onto the ladder but also to move around freely, so we need to be creating the conditions for them to achieve this.

“Despite this, we were disappointed that there wasn’t further discussion of increased regulation for the lettings industry, which is crucial in ensuring a more transparent and better functioning industry for tenants, landlords and agents.”

Jon Werth of London agents LiFE was even more despondent, adding: “It won’t make a single bit of difference to the figures, in my opinion, but will be good for consumer confidence.

“Help to Buy has been the great incentive recently but mortgage companies are still not lending as easily as they could, so it’s a status quo I’m afraid.”

Mark Hayward, chief executive of NAEA Propertymark, said: “It’s a smart move to ensure the dream of home ownership 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.

“We do however need to realise that this move will increase the demand for first-time buyer properties and if we don’t have the supply it will push prices up. We have seen this in areas where Help to Buy is offered, as it attracts a great deal of interest.

“In terms of the Government’s plans to build 300,000 new homes a year, it is yet another pledge to increase the number of new homes created.

“While we welcome this news, we have historically had these announcements from Government to accelerate housebuilding which has not been delivered. It is not a question of ‘how many’, it’s a question of ‘how’.”

Read the Government’s Stamp Duty briefing paper

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/661436/Stamp_duty_land_tax_relief_for_first-time_buyers.pdf

* The Budget also announced an empty homes premium that would let local authorities increase the council tax premium from 50% to 100% on empty properties.

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11 Comments

  1. Rob Hailstone

    If anyone would like a copy of the HMRC Guidance Notes please email me: rh@boldgroup.co.uk. They contain a useful Q & A section.

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  2. AnotherPlanet365

    Consumer confidence? With this rudderless Government? Austerity rolls on and we seem absolutely powerless, having to witness the shockingly inept performance of those managing the UK.  Whichever way you look it’s like a Punch & Judy show!

    Why are we allowing this to continue?

    It’s critical that this bunch of clowns stop clowning about and get this economy and its hardworking people back on track. We pay for this hapless lot to sit there and f*nny about!

     

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  3. jamess48

     

    “The Office for Budget Responsibility (OBR) said the main beneficiaries would be existing homeowners, rather than first-time buyers, because it expects all house prices to rise by 0.3% as a result of the change. 
    It also estimates that it will result in only an additional 3,500 first-time buyer purchases [each year??].
    The policy will cost the Treasury £3.2bn over the next five years.”
    So, the government is effectively giving £182,857 to each first time buyer that this policy will help, and pushing up house prices to make it even harder for the hundreds of thousands of people in their 30s and 40s who are unable to afford to buy.

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    1. g4lvo17

      What a moronic statement, and shows that you have neither an understanding of basic maths or an understanding of economics

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  4. LandlordsandLetting

    I’ve kept that list, published in Property Industry Eye, of average house prices in northern Britain. In many areas prices are LESS than 10 years ago and falling. Not one of them is anywhere near Philip Hammond’s magic £300,000. In Liverpool for example, it’s about £127,000 – and that’s the AVERAGE price.

    With reference to Daniel Kahneman’s book, the government should stop ‘thinking fast’ and start ‘thinking slow’. What is needed instead is real financial incentives to businesses and industry to relocate northwards, coupled with proper investment in infrastructure there. Many young people are forced to move to the overcrowded south to get work and then they can’t find affordable property – or doctors, or easy commutes, or schools.

     

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  5. Mark Walker

    HertfordLibDems‏ :

    “Also, government paper says this will allow 3,600 extra people to get on the housing ladder. That’s a cost of £900,000 per extra person! We could have built them all a mansion!”

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  6. Beano200062

    But its not though is it… Its the price of the stamp duty saved times by the number of 1st time buyers not paying it. Someone is getting their knickers in a twist.

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    1. jamess48

      Beano,

      Firstly, I have no knickers.  The policy is (supposedly) designed to help FTBs.  Setting aside those FTBs who are already in a position to get on the property ownership ladder, the policy will help an additional 3,500 FTBs to buy their first home (each year).  The overall cost of abolishing SDLT below £300k for all FTBs is estimated to be £3.2bn.  Therefore, if the policy helps 17,500 people to get on to the ladder (who otherwise would have not been able to) and costs the Treasury £3.2bn, it is perfectly reasonable and true to conclude that the country as a whole is subsidising 17,500 people at a rate of £182,857 per person.  It might be hard for you to believe and/or get your head around, but that’s not our fault.

      The secondary beneficiaries of this policy are:

      1. Those who are already on the property ownership ladder, because it invigorates activity at the bottom end of the market and pushes property values up yet further.

      2. Estate agents, conveyancers and every other industry associated with the home moving process.

      3. Developers.

       

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      1. g4lvo17

        If you took the average house as £300k ( which it is not, it is much lower ) and calculate the stamp duty saving is £3000, then multiply by 17,500 people, the answer is £52.5 million pounds, how can you equate that to a subsidy of £182,857 per ftb, as I said moronic and utter rubbish

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        1. jamess48

          The abolition of SDLT below £300k applies to ALL FTBs, not just the estimated 3,500 additional FTBs that are expected to be helped onto the ladder by this policy. There were about 320,000 FTBs in the UK last year. Shame (and a bit worrying) that you don’t get it!

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  7. Agent in a state

    We need to give these guys a chance for Gods sake!  The poor man can do no right!  You all complain when it gets it wrong and still complain when he listens.

    At the end of the day, we have Brexit coming up, he does not have much to play with but what he has, he has put to good use.  If we see more FTB’s coming into the market, that will free up a lot of buyers to get out there and move.  EVERYTHING starts with a FTB.

    The Business rates adjustment is a plus for most agents, I genuinely feel that the budget has been far better than many predicted.

    Lets face it, if we manage to hold on to a Tory Government (love them or loath them) rather than slipping back into the 1970’s with Comrade (Micheal Foot) Corbyn, then it ain’t half bad!

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