One of the Chancellor of the Exchequer’s measures to receive great publicity after his autumn 2017 budget was to make new stamp duty rules to encourage first-time buyers to get on the housing ladder. Read on with Personal Loans Now to find out more.

What does the New Stamp Duty Rules Mean for First-Time Buyers? Personalloansnow

Learning Highlights
  • What stamp duty is
  • What has changed about stamp duty
  • The effect the exemption will have on first-time buyers
  • Why the Chancellor abolished stamp duty for most first-time buyers
  • Criticisms of the measure: stamp duty as a barrier to home ownership
  • Conclusion – new stamp duty rules

In this article, we explain what stamp duty is and what the new change to it is. We also examine what this measure will mean in practical terms for people buying their first home. Will it make a difference? Also, we look at how the measure was received and what critics said.

What is Stamp Duty?

Stamp duty is the lump sum tax which you must be pay within 30 days of buying property or land. The amount paid depends on the purchase price of the property. Before the new change was announced, the old system was that any house worth under £125,000 was exempt from tax. However, the charges for any amount over this sum were as follows:

Stamp duty prior to changes:
£125,001-£250,000 2%
£250,001-£925,000 5%
£925,001-£1,500,000 10%
Over £1,500,000 12%

What is the Change to the Stamp Duty?

Taking effect immediately, first-time buyers are now exempt from paying stamp duty for the first £300,000 on any home costing up to £500,000. This change applies to first-time buyers who will be using the property as their main residence. It will only affect homebuyers in England, Wales and Northern Ireland since Scotland has no plans to make changes to its land and buildings transaction tax. The measure will only apply to Wales until March 2018 when powers are devolved to them.

What Effect will the Exemption Have on First-Time Buyers?

The Treasury has calculated that 80% of first-time buyers will no longer have to pay any stamp duty at all. They also estimated that this change will save the average first-time buyer £1,660 on the associated fees and charges related to buying their first property. This can be a great help for the unemployed, or people who are on a low income and looking to purchase their first house. Being educated on the new stamp duty rules may enable low income earners to consider purchasing their first house without requiring a guaranteed loan for unemployed from Personal loans Now.

Stamp duty blocks over 45,000 house purchases a year - Personalloansnow

Why did the Chancellor Abolish Stamp Duty?

A report by the Centre for Economics & Business Research estimated that stamp duty blocks 45,000 house purchases a year. Abolishing the stamp duty for first-time buyers is designed to get them on the property ladder and out of rented accommodation. The question is whether this measure will have the intended effects and how far it will help both first-time buyers and by extension, the UK’s housing crisis.

Criticisms of the New Stamp Duty

There have been different criticisms of Philip Hammond’s new measure. Personal Loans Now, offering access to some of the most trustworthy personal loans online in the UK, look at them in depth.

  • Stamp Duty as a Barrier to Home Ownership
  • Many critics have emphasised that the main barrier preventing people buying property isn’t the payment of stamp duty but rather saving up for the deposit. The average first-time property buyer in the UK spends £165,000 on their first property (although in London this is considerably higher). To be eligible for a mortgage, they should save at least 5% as a deposit. Therefore, they would need to put by at least £8,250. Under the new measure, they’ll now save £800 on stamp duty. When put beside the size of their deposit, this saving doesn’t seem as if it’ll make much of a difference to the affordability of the property.

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  • Encouraging Home Ownership
  • Ignoring the whole issue of the relative costs of deposit vs stamp duty, will this new measure really encourage first-time buyers? This measure has been tried before. In 2008, the Chancellor of Exchequer, Alistair Darling, announced a stamp duty ‘holiday’ to help first-time buyers. Halfway through it was declared a failure by HMRC. Their report on its implementation said: “it has not had a significant impact regarding improving the affordability of residential property for first-time buyers. It is estimated that majority of the buyers who benefited from the relief would have purchased property in its absence anyway.”

  • Will House Prices Rise?
  • Another concern voiced by the OBR is that this measure will, in fact, push up house prices UK. Many buyers might possibly use their savings on stamp duty to go for a more expensive property than they would otherwise have been able to afford. This increase in demand will mean people selling their houses will put the prices up. The OBR have predicted a 0.3% increase from 2018. The irony is that the new stamp duty rules will benefit those who already own homes rather than first-time buyers.

    First-time buyers don't pay stamp duty for the first £300,000 on any home up to £500,000 - personalloansnow

  • Benefiting Homebuyers in London & the South
  • Another criticism of this measure is that it will overall benefit first-time buyers in London and the South more than residents of other areas of Great Britain. This is because of the enormous difference in property prices in different parts of the country. The online estate agent HouseSimple did a survey of homes available for sale at the time of the Budget. For London, they found that there would be a 5% increase in the number of homes which would be exempt from the stamp duty (an increase from 0.3% to 5.3%).

    By contrast, in a city like Bradford, nearly two-thirds of houses for sale are under £125,000 and are already exempt from stamp duty under the old rules. For most first-time buyers in such areas, this measure won’t make any difference to the costs associated with the purchase of a house.

Conclusion – Will the New Stamp Duty Rules Help First Time Home Buyers?

The new stamp duty rules to help first-time buyers will be of dubious value to solve the UK’s housing crisis unless it is accompanied by other measures. It seems to be treating a symptom rather than the cause. After all, how many times have you heard prospective first-time buyers say, “I’d love to buy a house, but I just can’t afford the stamp duty”?

Past experience has also shown us that changes to stamp duty rarely work the way that the government intends. Especially in a volatile market like the housing market. The OBR estimates that the measure will lead to only an additional 3,500 first-time buyers’ home purchases. Only time will tell if they’re right.

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