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
* 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.