The chancellor made a bold move to remove Stamp Duty Land Tax (SDLT) for most first-time buyers in the Budget on Wednesday. Raising the threshold to £300,000, immediately and indefinitely, will lift 80 per cent of them out of the tax.
To account for higher prices in some parts of the country, all first-time buyers buying property up to £500,000 will benefit from the £300,000 exemption. That means that 95 per cent of first-time buyers will benefit from the change – at today’s prices.
This is good news for buyers taking their first step on a housing journey. It means that someone buying their first property for £300,000 effectively gets an extra £5,000 to spend. That could contribute to a deposit allowing someone to bring their purchase forward.
While the policy will make an enormous difference to the individuals who can take advantage of the relief now, it won’t cure our beleaguered housing market by a long chalk
Or it could mean that they could take out a smaller mortgage, possibly making the difference between passing or failing a mortgage affordability test and realising a dream. It should help some existing owners wanting to move on, too. Unlike the Help to Buy scheme, the benefit of this policy is that it isn’t restricted to new builds, either.
While the policy will make an enormous difference to the individuals who can take advantage of the relief now, it won’t cure our beleaguered housing market by a long chalk. Affordability – particularly raising a deposit – is still a huge hurdle for first time buyers.
The average first time buyer home in England currently costs about £200,000. The stamp duty relief on this will save the buyer £1,500. But when a 10 per cent deposit on the average first time buyer home in England adds up to £20,000, it’s only a small help.
Even in London, where the average first-time buyer home costs £365,000 and a deposit £36,500, a £5,000 saving is welcome, but doesn’t mean everyone wanting to buy a home can do so immediately. Indeed, the Office for Budget Responsibility estimate that the policy will only add about 3,500 new transactions and some of those would have happened anyway. It also predicts that the extra cash made available will feed through into higher house prices quite quickly.
So, is it a good thing? Well, yes, for the individuals that can benefit, but less so for the long-term recovery and stability of the housing market. Stamp duty is a bad tax, discouraging the mobility we need in the market to move. And it is a significant hurdle for all buyers, not just first-time buyers.
It is activity among movers that is most critical to the growth of transactions and the efficiency of the wider housing market. Without making it easier for all homeowners to move on, the supply of property to buy will always be limited, and that will hinder everyone in the market, from first-time buyers to upsizers to downsizers. It will mean compromises in getting the right roofs over the right heads and making the best use of our housing stock.