Has the stamp duty cut made property more expensive for first-time buyers?

It was the Budget announcement that dominated all the headlines and seemed to give first-time buyers extra hope of making their home-buying ambitions a reality. But is the Stamp Duty exemption really making a difference to first-time buyers?

Philip Hammond’s abolition of stamp duty for first-time buyers on homes worth up to £300,000 was met with cautious optimism and seen as a welcome shot in the arm for first-timers struggling to get on the property ladder.
 
Now, however, questions are starting to be asked about the effectiveness of the cut and whether or not it’s actually making things more difficult for this demographic.

A quick recap

First, a quick recap of what was announced last November. In a move that had been mooted but was still seen as hugely significant, Hammond revealed that stamp duty would be removed immediately for first-time buyers purchasing homes worth up to £300,000, while buyers in London and other more expensive areas would pay no stamp duty on the first £300,000 of the cost of homes valued up to £500,000 (with the remaining cost incurring a 5% charge).
 
It was said that this would free 80% of first-time buyers from having to pay any stamp duty at all, while 95% of all first-time buyers would benefit from a reduction in their tax bill.
 
Shortly after the measure was announced, we took a look at how it might affect first-time buyers, with early criticism from the Resolution Foundation about how the stamp duty cut would inflate house prices by more than first-time buyers would save, while the Office for Budget Responsibility (OBR) said the policy would only help 3,500 first-time purchasers.

On the other hand, it was argued that buyers with smaller deposits would be more likely to benefit, as well as those buying up cheaper properties where the inflation in house prices would be comfortably offset by the savings made from not paying stamp duty.

What’s happened since?

Since Hammond’s announcement there has been a mixed reaction from the housing industry, and the wider public, regarding the merits of the stamp duty exemption.

Almost immediately after the scrapping of stamp duty for first-time buyers was unveiled, some in the property industry spoke up to voice their disapproval. Lewis Johnston, parliamentary and public affairs manager at RICS, said removing stamp duty for first-time buyers might help to stimulate activity in a subdued market, but that the measure did not tackle the ‘underlying problem’ of a lack of supply and might actually serve as a distraction rather than a cure.
 
Jean-Marc Vandevivere, former head of residential at British Land and now chief executive at start-up housing developer Platform, was in agreement, arguing that the stamp duty removal won’t encourage the building of new housing and will only benefit the well-off who can save for a large deposit and cope with higher house prices.
 
Meanwhile, high street lender Nationwide said the Chancellor’s decision to scrap stamp duty for most first-time buyers would only have a ‘limited effect’ on the market generally and especially first-time purchasers.
 
“The decision in the Budget to abolish SDLT for first time buyers purchasing a property up to £300,000 (with relief for those purchasing a property up to £500,000) is likely to have only a modest impact on overall demand,” Robert Gardner, Nationwide’s Chief Economist, said in late December. “In many regions, first time buyers already paid little or no stamp duty as the price of the typical first-time buyer property was below the previous threshold of £125,000.”
 
More recently, the influential Treasury select committee – chaired by Nicky Morgan, the former Education Secretary – said the stamp duty cut wasn’t really helping first-time buyers as increased demand is likely to grow house prices by at least the amount the reduction is intended to save. “In isolation, the reduction in stamp duty is likely to increase prices for first-time buyers by as much, if not more, than the amount they save as a reduction in stamp duty,” the committee said, while also criticising the fact that the change will only help a further 3,500 buyers to get on the ladder.

Has there actually been a rise in demand?

 Most of the talk has been of house prices inevitably rising as demand from first-time buyers soars. A recent survey conducted by RICS, however, casts some doubt on this assertion. Some 86% of members who were questioned in the survey claim to have seen no rise in interest from first-time buyers since the scrapping of stamp duty was announced. 
 
When asked to consider the likely impact of the stamp duty cut on the market over the coming months, most respondents (66%) said they expected the change to have little effect, with only 12% of the belief that it would cause a higher level of overall activity.
 
Simon Rubinsohn, RICS chief economist, said that initial feedback from the market doesn’t suggest that the change in stamp duty is going to have a material influence on activity. “Indeed, the risk was always that a good portion of the benefit would be capitalised in the price, therefore limiting the benefit for the first-time buyer,” he said.

Theresa May’s bold claim challenged

There was a sense of bafflement when Theresa May claimed in early January that the stamp duty changes had already aided some 16,000 first-time buyers.
 
Despite the claims that only 3,500 buyers would benefit, May was quoted as saying that more than 16,000 had already saved thousands as a result of Hammond’s measures.
 
With transactions typically taking some time to complete, and a range of industry experts suggesting that the change would only have a limited impact on the market, there was scepticism about where May plucked this figure from.
 
Labour dismissed the claim. “The number of young home-owners is in freefall but under the Tories the number of new low-cost homes for first-time buyers has halved and not a single one of the 200,000 'starter homes' promised has been built,” the party’s housing spokesman John Healey said.
 
The majority opinion seems to be that the number of first-time buyers helped by the removal of stamp duty will be minimal, while many also expect house prices to rise as a result of upped demand and flagging supply.
 
Those who say that the move was a purely political stunt – designed to get young people on side and distract from other announcements in the Budget – may therefore have some legitimacy to their complaints, but it will only become clear over time how effective the stamp duty exemption has actually been.