It would be fair to say that Phillip Hammond, the Chancellor of the Exchequer, caught a few people by surprise in his Autumn budget of November 2017. The announcement that stamp duty would be abolished for first time buyers purchasing property up to a value of £300,000 was unexpected, and the Government says this move will benefit 80% of first time buyers in the country.
There was a further announcement saying that first time buyers spending £500,000 on a property would see the first £300,000 of their expenditure not eligible for stamp duty. The Government stated that these combined changes would lead to 95% of first-time buyers benefitting by being able to save money.
Given the difficulties that many first-time buyers have in affording property, you’d think that there would be universal approval for this move. However, as is often the case in politics, there are opposing viewpoints and there has already been discussion as to whether this move will be of benefit to buyers.
Many think this will be of benefit
At face value, of course this move is going to be of benefit. Any saving at all is likely to be of interest to a first-time buyer and this may take some of the financial pressure out of the buying situation for an interested person, couple or family. However, the property market doesn’t operate in a vacuum and when one thing changes, other things respond or react. This is the backdrop to some parties suggesting that this move will actually harm first-time buyers in their attempts to get on the property ladder.
This is the claim made by The Resolution Foundation who believes that this change in policy will lead to an inflation of property prices, and this will ultimately see a first-time buyer spending more money to obtain a home.
The organisation believes that there will be a price rise of £3,200 for average priced homes, and with the average stamp-duty saving expected to be around £1,600; a first-time buyer could actually be £1,600 worse off thanks to this move.
This may increase the cost of property
The organisation did point out some positive aspects to the policy change though. It is thought that buyers opting for cheaper homes will be able to make a bigger saving in stamp duty than the expected increase on the property they are interested in. There is also the fact that the removal of stamp duty means that a buyer can use more of their money towards a deposit, which can help in obtaining a mortgage and making the overall cost of a property more affordable.
Another organisation which has reported on the change is the Office for Budget Responsibility, the OBR, and they also believe that this policy change will lead to house prices increasing, stating 0.3% as the expected increase. The OBR have also stated they expect the change in policy to only benefit around 3,500 buyers.
With respect to the overall impact on the market, Generation Rent, who represent people renting privately, have welcomed this change in policy but they don’t believe that the change will do anything the lower the overall costs of property.
There have been suggestions from some sources that the cost of this policy change, said to close to £3 billion, would have been better used in building 40,000 social homes or developing over 100,000 homes that would be built through the Housing Infrastructure Fund of the Government.
As with many aspects in the property market, and with many things relating to the Government, there are wide opinions on who will benefit. There are some people who believe that this change will be of greater benefit to property owners as opposed to first-time buyers and people looking to get on the property ladder. As is usually the case, a buyer’s personal circumstances will be the factor that determines whether this is of benefit to them or not, so there is a need for individuals to examine their own needs and opportunities from this policy change.
While the announcement of the abolition of stamp duty for first time buyers came from out of the blue, you can guarantee that debate on this topic will continue for a considerable period of time.
If you are looking for a property and need some advice, get in touch with a member of the team here at Frank Schippers.
