The Autumn Budget reflected, amongst other things, the Government’s continued focus on the housing market, and in particular, first time buyers. With the vast majority of the UK unable to generate enough income to support a deposit or to qualify for a mortgage, the abolition of stamp duty for properties up to £300,000 bought by first time buyers would have been a welcome encouragement. This is a benefit to others purchasing at up to £500,000, with the first £300,000 not subject to stamp duty, and the latter £200,000 subject to an effective rate of 5%. This was one of a number of changes announced in the Budget looking to reverse the recent decline in home ownership.
The move may reflect on an appreciation by the Government of the increasing resentment felt by many at being locked out of the housing market due to overwhelmingly high purchase costs. This is supported by statistics that show that the proportion of people in the ages 24-34 bracket who own their homes fell from 59% to 37% over the last 13 years up to 2015. The Treasury commented that this move will leave 80% of first time buyers paying no stamp duty at all, and more widely will benefit 95% of all first time buyers who pay stamp duty.
Of course, simply putting some boundaries around enacting this change, limits the benefits and to whom they may impact. Regional differences in average house prices means that London and the South East are likely to reap the greatest benefits. While some of those buying in North and South Wales, where many first time buyer houses are below the £125,000 stamp duty threshold, will benefit, it will clearly boost London and the South East to a greater degree. None of which will help to even out any perceived regional imbalance in the economy.
The principal benefit to first time buyers in this buying range is a possible save of up to £5,000 in stamp duty, but the average save is £1,660. This is reflective of the average first time buyer house price of £200,000, and this drops further outside the South and East where many will save less than £1,000.
This sum could be diverted to providing the required 5-10% deposit, which in itself still needs to be saved for or funded. More expensive areas of the country will remain with this high barrier to home ownership since the cut does not affect this. Consequently, the Treasury will experience an estimated reduction in revenue of £560million over the 2018-2019 tax year, with a further reduction of £3.2billion over the next 5 years.
As with all things budgetary, there are positives and negatives to the move. Any reduction to the costs of purchase ought to elevate buying levels, and unless there is increased supply in the areas most affected, this could increase house prices. While those already owning a house and mortgage might be pleased, this is counter-productive to supporting first time buyers. Ensuring a balance between supply and demand is a key component of ensuring that the budgetary intentions strike the right note. It is estimated that house prices could rise by around 0.3% from this move alone, which is not huge on an individual transaction, but is significant as a market average.
The change should also shorten the time taken for first time buyers to achieve their necessary funding for a house purchase. It is also possible that the removal of the stamp duty liability might encourage more friends and family to support first time buyers.
Of course, there are broader structural challenges in the housing market today. The size of deposit required remains a key barrier to any house move. Other stamp duty bands are also considered to be in need of an overhaul, as is the mechanism by which buyers and sellers come together and form the “chain”. A large number of potential buyers are excluded from mortgages under the revised affordability rules that lenders are obliged to follow, or are significantly limited in the size of mortgages available to them.
So it remains to be seen whether this budgetary change will have the expected result, and it is clear that further work is needed to support the market in an inclusive fashion.