It’s pensioners, not first-time buyers, who should get stamp duty relief
Stamp duty is in the news again.
Earlier this week, Labour’s shadow housing minister, John Healey, called on the government to extend the tax break introduced in the November Budget to first-time buyers who use the shared ownership scheme.
Policies that are seen to help struggling first-time buyers always go down a treat from a political perspective.
The scrapping of stamp duty tax was largely heralded as a positive move, and seemed like a long-awaited change in tone from the Tories, who had neglected the concerns of younger generations for years.
On the surface, the tax break looks like a noble gesture that would nudge more young people onto the housing ladder.
But what appeared to be an altruistic policy from the government is, in truth, a bit of a damp squib, and unlikely to achieve what is intended. In reality, those who benefit from a tax break will have plans to purchase a property anyway.
The real struggle for young buyers is getting the initial deposit together (and let’s not forget that would-be homeowners in London need an average first deposit of £91,409). Stagnant wage growth also makes the prospect of getting a mortgage even harder.
Stamp duty relief might bring house purchases forward, but it will not alleviate the affordability problem.
Where tax breaks could be helpful is in encouraging people to downsize. The government should address the fact that many older people are clutching onto these family-sized houses, even though their middle-aged children left the nest several decades ago.
So what if the government gave older generations – say, those last-time buyers in their 70s – a tax break for moving into smaller properties? This would give older people an incentive to downsize, and free up the middle section of the market, so that younger buyers can get some real relief – in the form of housing stock.
If families are able to take their next step up the property ladder by moving into larger properties (which older people are currently occupying), it will ultimately free up those potential first-time buyer properties in the lower price range.
Giving retirees a tax break might sound like another policy for the oldies, but it’s possible that it could actually have a far bigger impact than the relief now offered to first-time buyers.
Key Retirement’s Dean Mirfin advocated this during a roundtable last week, pointing out that one of the biggest costs for older people is stamp duty tax.
Older people are not mortgaging – they are moving, so actually saving a few thousand pounds on stamp duty would be a massive incentive to downsize. By comparison, stamp duty is relatively small in the overall cost of a first-time buyer’s finances.
Of course, the problems in our housing market all stem from a lack of supply, but until we are building enough houses, we need to stimulate activity across the market to make the most of this painfully limited stock.
It’s time to ease the pressure in parts of the property market so that young people can finally own their own homes.