5 min read

What is the stamp duty change and will it really help first time buyers?

23 November 2017

The headlines from this year's autumn budget speech were all about the cut to stamp duty for first time buyers. However, as more people analysed the announcement, it wasn't quite what it seemed.

What exactly was announced?

In November's autumn budget speech Chancellor Philip Hammond announced that Stamp Duty was to be abolished entirely for first-time buyers, with immediate effect.

This means if you’re buying your first property you won’t pay any stamp duty up to the value of £300,000. If the property is worth up to £500,000, you won’t pay stamp duty on the first £300,000. If you're spending over £500,000 on your property, then you'll still have to pay stamp duty.

The news applies to buyers in England, Wales and Northern Ireland (in Scotland there’s a separate system). Hammond said his announcement would mean that 95% of first-time buyers would see their stamp duty cut, while 80% would simply pay none at all.

The reaction

It’s a move that has been welcomed by many commentators as signalling real hope for new buyers. It also goes to prove that the government is taking action to help younger people who are struggling to achieve the milestones that previous generations reached more easily.

Jasjyot Singh, mortgages director at Halifax, said: “The changes to Stamp Duty are a real boost for those hoping to take their first step on the property ladder.

“Today’s first-time buyers need to find an average deposit of £32,899 – if they do manage to purchase their first home, they are on average £651 a year better off owning versus renting.

But then people started analysing what the change would actually mean for buyers. While many are still relieved and delighted, there are a lot of questions around how much this will help people trying to get on the property ladder.

Here’s why.

Couples can’t get the break unless they’re BOTH new buyers

The first blow was for couples where one party is already a homeowner, or has been in the past.

In order to qualify for the tax break they must both be first-time buyers. So, expect to see people boasting about NOT owning their own home on the dating websites soon.

It won’t be much help in the north

While buyers in London, Oxford and other pricey areas will get a substantial saving when you look at the Stamp Duty bill on the average first-time home, it’s a much smaller incentive in other parts of the UK.

Jon Ostler, CEO of the website finder.com crunched the numbers and found that Londoners pay an average of £422,380 for their first home, meaning a tax saving of £5,000.

However, in the north-west, where the average new buyer pays around £135,963 for their first home, they will save £219. In Wales they’ll save an average of £89, while in the north-east, the average first home costs around £112,019, meaning there’s no Stamp Duty to pay and no saving to be had.

“In order to truly help first-time buyers in the short term, the government would need to offer a far greater incentive,” he argued.

“We can learn from our friends in Australia who offered significant grants to first-time buyers of between £4,000 and £10,000, this level of investment proved to make a real difference to the number of first homes bought.”

It’s probably going to push up prices

Probably the biggest blow to the Stamp Duty announcement came from the government’s own fiscal watchdog, the Office for Budget Responsibility (OBR).

Analysis from them suggests that the move will simply push house prices up by the Stamp Duty equivalent, meaning more money for existing homeowners and no actual help to new buyers.

But the Chancellor has hit back at this, arguing that the other measures he’s putting into place to boost building will have a downward pressure on house prices.

It doesn’t help second steppers

There are plenty of people who’ve managed to buy but are now trapped in homes too small for their growing families because they can’t afford the next step.

Some criticism of the Stamp Duty change is that it does not go far enough to help them.

Helen Morrissey, personal finance specialist at Royal London, said: “The current Stamp Duty regime is depressing the housing market and preventing thousands of transactions from going through.

“First-time buyers can’t buy homes if current home owners can’t afford to sell them and so we need a much wider ranging review of stamp duty if we are to get a more fluid housing market.”

Poor Hammond. In a challenging economic environment he managed to drag out a headline-grabbing giveaway only to find that plenty of people say it’s not the rabbit out of the hat they were hoping to see.

But the chances are that those first-time buyers who do benefit won’t care about the second steppers or the wider pressure on the housing market. They’ll just be glad to finally get the keys to their own place.

ClearScore exists to make your finances simple.
We offer a free service where you can handle everything to do with credit in one place. In your ClearScore account, you can see your credit score and the full details of your credit report. Your credit cards, mortgages, mobile phone contracts, loans, overdrafts and utilities all on the record. Our goal is to make ClearScore as simple, calm and straightforward as possible. Money is stressful enough.