Many first-time buyers will no doubt be pleased at the changes made to stamp duty in 2017’s Autumn Budget. As of 22nd November, first-time buyers were no longer required to pay stamp duty for residential property purchases worth £300,000 or under. Relief was also announced for those living in more expensive areas such as London, where the purchase price could be worth up to £500,000.
But a new report from the Treasury select committee has sounded a warning concerning the changes. The committee revealed the eradication of stamp duty in these circumstances is likely to lead to a rise in house prices. Therefore, any benefit that would be garnered by not needing to pay stamp duty is likely to be wiped out.
Only 3,500 new buyers?
The report from the committee further agreed with a previous statement issued by the Office for Budget Responsibility. That statement suggested only around 3,500 first-time buyers would benefit from the abolishment of stamp duty at that level.
“At first glance, the news that most first-time buyers will no longer need to pay stamp duty is good,” said Darren Pescod, CEO of The Mortgage Broker Limited. “However, this latest news indicates the picture is far more complex than that. The abolishment of stamp duty is likely to make some properties more appealing, which could well lead to a rise in prices as suggested in this report.”
Is there a solution?
There has long been a push to encourage more homes to be built across the country. The target is to build 300,000 homes a year, but this will only be met if further steps are taken to ensure this occurs. Around half that total is met by private housebuilders. However, local councils are subject to a borrowing cap that means they cannot free up enough cash to plough into housebuilding.
Councils can apply for the cap, which applies to Housing Revenue Accounts, to be raised. This will occur from 2019-20 and onwards. However, many are calling for the cap to be eradicated. On closer inspection, the Budget information stated the government would “monitor how authorities respond”. They would then consider whether “any further action is needed.”
If more houses were built each year, demand for existing properties would ease. This would make house prices more stable, as competition for properties would not be as keen. This may then lead to greater affordability for first-time buyers among others. If this were to occur, the abolishment of stamp duty under these circumstances would have a greater effect.
“No doubt some first-time buyers will benefit from the changes in stamp duty,” Darren Pescod added. “But if this report is correct, it may not benefit as many as we had hoped. While the target of building 300,000 homes a year is admirable, one wonders how achievable it is. And in the meantime, many would-be purchasers will still be struggling to afford their first property. That’s a tough situation to be in.”