Chancellor of the Exchequer Philip Hammond announced a series of policies to encourage more people to buy property in the budget last week. Stamp duty was immediately abolished for first time buyers buying a home costing up to £300,000, and the government promised to spend £44 billion on constructing new homes. These measures are designed to make owning a home more attractive and affordable for young people and first time buyers, but some have claimed that existing homeowners will benefit the most from these changes.
Reduced Stamp Duty to Encourage First Time Buyers
House prices have risen sharply this year, meaning that rates of homeownership have hit a record low. This means that for many prospective first time buyers, purchasing property is simply unaffordable. The changes announced to stamp duty mean that 80% of first time buyers will not pay any, and 95% will pay less, lowering the overall cost of purchasing property.
Prior to the changes announced in the Autumn Budget, Stamp Duty Land Tax was payable on all properties costing more than £125,000. With the average cost of UK property coming in at £225,956, and the average for London being over double that amount, most buyers would pay approximately £2000 in stamp duty according to the old system.
It’s not just stamp duty which has contributed to low rates of homeownership. Stamp duty, in addition to legal fees, deposits and mortgage fees, make the cost of purchasing property increasingly unaffordable for first time buyers. The average first time buyer is required to save £32,889 for a deposit, meaning the new reductions in stamp duty only offer a small saving.
Will First Time Buyers Actually Benefit?
With the introduction of this policy and the 26-30 Railcard, this budget seemed geared towards young people and first time buyers. However, the Office for Budget Responsibility (OBR) has claimed that it will be existing homeowners who benefit most from these changes. In the past, breaks from stamp duty have pushed house prices up further, and it is estimated that under the new system, house prices will rise by 0.3% over the next year. The OBR also predicted that only 3500 additional first time buyers are expected to purchase a property as a result of the changes to stamp duty.
Other critics have argued that in many areas of the country, the changes will have little to no effect. In areas such as the North East of England and Wales, the cost of property is less than the national average and many buyers would have paid little or no stamp duty on their purchase under the old system.
The Effect of Building New Homes
In addition to the reduction in stamp duty, the government has made a pledge to build 300,000 new homes per year. According to the House of Lords Economics Affairs Committee, this number is the minimum annual amount to meet demand for housing, and if this demand is met it will have a ‘moderating effect on house prices’. If this scheme works as the Chancellor intends, purchasing property might become more affordable for first time buyers. New changes to the planning system will also encourage better land use in larger towns and cities, meaning new homes can be built without using green belt land.
The policies announced in this budget will have a huge effect on the property market, but only time will tell whether first time buyers will benefit or not. Navigating all the different stages of buying property can be confusing, and especially so for first time buyers. It’s okay to have questions about how the process works, just make sure you ask those questions to a trusted legal professional. The LawOn app allows you to do just that. The smart way to lawyer up is nearly here.