Chancellor Philip Hammond announced on Wednesday that first-time buyers will no longer have to pay any stamp duty – a tax levied on property purchases – on properties worth up to £300,000 (US$400,000), and will pay no duty on the first £300,000 of properties worth up to £500,000. Hammond said the move would cut the tax for 95 percent of first-time buyers and abolish it altogether for 80 percent of them.
According to a damning Office for Budget Responsibility (OBR) analysis, however, the policy will increase house prices by 0.3 percent, with most of this occurring in 2018. “The consequence of introducing the relief will be to increase house prices,” it said, adding that the reduction in tax costs will feed through into house prices “relatively quickly” as “the relief frees up first-time buyers’ savings to put towards higher deposits.”
Despite the government’s spin, the OBR has modelled the impact of previous similar changes. A temporary relief from stamp duty was introduced to support the housing market in the wake of the financial crisis, which also served to drive up prices.
The OBR also said some potential buyers with smaller deposits could benefit by being able to buy more expensive properties they could not otherwise afford, but added those who already own property will be the real winners. It said in a statement: “The main gainers from the policy are people who already own a property, not the first-time buyers themselves.”
It has also been pointed out that the savings for those struggling to get on the housing ladder are minimal. Almost a third of first properties sold in 2016 were below the stamp duty threshold, according to Halifax’s First Time Buyer Review. That means 29 percent of people who brought their first home last year would have seen no benefit at all.
For those that do benefit, the savings will be small as the most anyone can save is £5,000. That will only be for properties sold to first-time buyers that are worth more than £300,000 – which are uncommon. Seventy-four percent of first homes sold last year cost less than £250,000.
“When we said we would revive the home owning dream in Britain, we meant it,” Hammond told the Commons, to Tory cheers. The proposal isn’t being as well received by the public, however.
Many recent first-time buyers have taken to Twitter to lament the proposal. Samuel Holmes tweeted: “Paid my stamp duty yesterday. Thank you @PhilipHammondUK,” while Leigh Mary Stokes said: “Cheers for abolishing stamp duty 4 months after I bought my first house though.”
Others said Hammond should be focusing on making house prices more affordable, which is the real barrier to homeownership. Many said those who struggled to get onto the housing ladder before will still do so, and the plan would not provide enough support to make a marked difference.
Tom Kibasi tweeted that for most young people, the stamp duty cut will make little difference but “help the beneficiaries of mum and dad.” Another Twitter user, Haider, said: “You know what the problem is with stamp duty bracket change for first time buyers? The house prices in London.”