The new stamp duty rules for first time buyers made headlines after last week’s Budget. However, as Tim Bennett explains, the impact will be pretty small.
Why the Budget won’t help many first time buyers
Last week, Chancellor Phillip Hammond unveiled his first Autumn Budget. One measure was headlined more than most – his change to the stamp duty land tax (SDLT) rules for first time buyers. This week I take a quick look at what’s new and assess the likely impact. Sadly, it looks to be a measure that will have generated more headlines than it does long-term benefits for young property buyers.
Stamp duty land tax – the basics
This tax is paid by buyers when they buy a property. Strictly it is due at the completion phase of a purchase, once all of the other checks have taken place and the property can legally change hands. The rate at which it is paid varies according to the value of the property, as follows;
It is worth remembering that these rates still apply to anyone who does not qualify as a first-time buyer under the new regime. The tax is graduated so that if you buy a property worth, say, £400,000, you will pay 0% of the first £125,000, 2% on the next £125,000 and 5% on the balance, in this case, a further £150,000. So that’s £10,000 of tax in total. So what is new?
New rules for first time buyers
Phillip Hammond’s change effectively eliminated stamp duty for first-time buyers where a property is worth £300,000 or less from 22nd November 2017. It also reduces the bill where the property is worth £500,000 or less. Above that level, the normal rules still apply, even if you are a first-time buyer.
For qualifying buyers, the new rates look like this;
How much could you save?
On the face of it, this looks like unadulterated good news. And for anyone who had already exchanged contracts on a new property by the time the rule change came into effect on 22nd November, it is. A quick comparison of the amount of tax due under the old and new rules looks like this;
The numbers ringed in pink represent the average cost of a first-time property nationally (a saving of £1,660) and in London (a saving of £5,500) respectively. However, as with most government measures, the devil is in the detail and this change may fall foul of the law of unintended consequences.
Why it may not make a big difference
The first hurdle for a first-time buyer is they must never have owned all, or part, of a property previously. If they are buying jointly, this rules applies to both parties. What’s more the property in question must be their only, or main, residence. These criteria will limit the impact of the rule change for many first time buyers, especially in London.
The next challenge is that sellers may simply adjust the price of properties for sale to factor in the change. Equally, given that quite a few new builders were covering some or all of the stamp duty on a first-time buyer purchase as an incentive, some may ask what is really “new” here for those buying from developers.
Finally, although all savings are always welcome to cash-strapped first-time buyers, this move does nothing to solve two much bigger problems;
· A shortage of affordable homes
· The difficulty of raising the much bigger sum needed as a deposit (around £70,000 on average in London, according to Savills estate agents
This is a move in the right direction for first-time buyers but it may end up being more of a headline-grabber than a panacea to the average young person’s property buying woes.