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News

Will the stamp duty change make much different to first-time buyers? Reality check

29 November, 2017

house doors

In the recent budget speech it was announced that stamp duty will immediately be scrapped for first-time buyers on properties of up to £300,000 in both England and Northern Ireland. This will also include Wales but only until April 2018, when it becomes Land Transaction Tax (LTT). So what will the impact be? Is it the answer first-time buyers need? And how will it impact the housing market?

Halifax Building Society says that the average stamp duty for first-time buyers is £1,800, while Savills estimate it to be £2,700. Assuming that it is somewhere in the middle, will this really make that much difference? When it comes to stumping up the minimum 10% deposit that most lenders require, first-time buyers are finding that they’re unable to save enough.

Recent research by Legal & General predicts that parents will have lent more than £6.5 billion throughout 2017 in order to help their children buy a home, a 30% increase on last year. From this figure, it appears that stamp duty isn’t the only issue facing first-time buyers, seemingly many can’t even gather the deposit without help from the bank of mum and dad.

This is reflected also in the fact that home ownership among young people has fallen significantly. In 1990, home ownership for 20-24 year olds was at 40%, but this had fallen to 13% by 2010. Similarly, the figure for 25-29 year olds also dropped in the same period, from 63% to 34%. The government argues that the abolition of stamp duty will help these figures rise again, but with wages falling and living costs rising, it’s hard for 20-29 years olds to be able to save for a deposit, with or without stamp duty.

With an average house price for first-time buyers of £202,765 in the UK, it’s not surprising that many struggle to stump up the usual 10% minimum deposit. Although the changes are better than nothing, this deposit figure is much higher than that of stamp duty, and with the average annual wage of a first-time buyer at £22,044, it is clear that without help from elsewhere many will be unable to afford a deposit. 

houses

It is also predicted that the changes will affect first-time buyers in the South more than it will those in the North, where the average property costs just £125,000. In fact, analysts at AJ Bell say that the average stamp duty in the North of England is just £11.82.

Furthermore, the Office for Budget Responsibility (OBR) expects that as a result of the changes house prices will rise by 0.3% within a year. This means that those more likely to benefit from the change are current homeowners rather than first-time buyers. They add that they expect the change to only result in 3,500 additional first-time buyer purchases, despite the Chancellor arguing otherwise. Property expert Henry Pryor echoes this, saying that ‘Pouring financial fuel on house prices will only result in even higher house prices, just as Help to Buy has done and as previous Stamp Duty holidays have.’

It is clear that the main issue facing first-time buyers is not stamp duty, but is instead rising housing prices.

Andrew Cullwick, spokesperson for First4Lawyers says: ‘While it’s great to see the government making steps to help first-time buyers get onto the housing ladder, stamp duty changes will not have a significant impact for first-time buyers, especially those in the North. Declining home ownership amongst 20-29 year olds since the 1990s shows that houses just aren’t as affordable as they once were, and more needs to be done to ensure that we don’t create a generation who can only afford to rent.’