Autumn Budget 2017: Stamp duty has been axed for first-time buyers but what does this mean?

November 29, 2017

In the recent Autumn Budget 2017Chancellor Philip Hammond announced the axing of stamp duty charges for first-time buyers who purchase a property with immediate effect.

What this means is that first-time buyers will not have to pay stamp duty on the first £300,000 of any home that costs up to £500,000. The Treasury estimates that this move will mean 80% of first-time buyers will not have to pay stamp duty altogether.

A first-time buyer is considered to be someone who has never purchased or inherited a property anywhere in the world and if you are applying for a joint mortgage, every applicant needs to be a first-time buyer in order to qualify.

So what do these changes mean for the market?

The maximum saving a first time buyer can make under the new rules is £5,000 if they purchase a property between £300,000 and £500,000. Although many welcome the move, it is unlikely to cause an influx of first time buyers purchasing a property. The issue for many lies with the affordability of houses and not with the additional stamp duty they have to pay.

It is also unlikely to help out the more struggling buyers, in particular those who live and want to purchase in London. In the majority of the UK the median price of a two-bed house is under £300,000, however in the home counties this jumps up between £300,000 – £500,000.

What this means is you will still have to pay 5% on anything above £300,000 meaning  you still have to account for anywhere between £50-£10,000 in stamp duty charges.

The Scottish Land and Buildings Transaction Tax will not change

The Scottish Government has confirmed there will be no changes to the current Scottish Land and Buildings Transaction Tax, which is the name given to stamp duty in Scotland.

Stamp duty in Scotland is paid on property purchases according to bands. If you are buying a higher-value property you pay a different rate for different proportions of the property’s price and they all add up together to give the final amount you pay.

  • Up to £145,000 purchase price: 0% stamp duty
  • £145,000.01 to £250,000: 2% (on that portion of the purchase price)
  • £250,000.01 to £325,000: 5% (on that portion of the purchase price)
  • £325,000.01 to £750,000: 10% (on that portion of the purchase price)
  • £750,000.01+: 12% (on that portion of the purchase price)

With the average house price in Scotland currently at £159,198 according to new Registers of Scotland (ROS) statistics, the majority of people would not pay stamp duty as standard.

How will this affect house prices?

The Office for Budget Responsibility (OBR) is damning the proposal suggesting this stamp duty cut will push house prices up. It is expecting this policy to increase prices by 0.3% with most of this taking place in 2018.

They are backing up their view reviewing the stamp duty holiday announced back in 2008 by the Labour Government.

The stamp duty holiday then applied to purchases on houses costing less than £175,000. When HMRC published an evaluation halfway through it concluded that the majority of the value of relief had fed through to higher house prices.

Jon Ostler UK CEO of personal finance site also thinks the government fell short, commenting:

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

Jason Lowes planning partner at property consultancy Rapleys says the budget is no ‘magic bullet’ for Britain’s housing problems.

“While many in the property industry will be buoyed by the reforms to Stamp Duty Land Tax for first time buyers and Business Rates, the lack of progress on planning risks undermining what was, we were led to believe, intended to be a blockbuster housing Budget.”

We will have to wait and see how these changes effect the housing market in 2018 and whether this move will encourage more purchases by first time buyers.