The UK’s housing market is a popular topic of conversation. And, since Chancellor of the Exchequer Philip Hammond’s surprise announcement to abolish stamp duty for first-time buyers in the November 2017 budget, it has no doubt been discussed around Christmas dinner tables.
However, does the stamp duty change really make it easier for the majority of first-time buyers to grab that first rung on the housing ladder? In many cases, probably not.
Not the main home-buying barrier
First-of-all, one detail that has come up a lot since the change to stamp duty for first-time buyers, is that actually, stamp duty isn’t one of the main barriers for first-time buyers. Yes, it does add to the overall amount that must be saved. But, for many first-timers – particularly those outside of London and the South East – it doesn’t add a great deal. In fact, it can often be a matter of less than £1,000.
Many housing market analysts point out that that biggest barrier to buying a home for first-time buyers is the size of the deposit required to get the best available mortgage rates.
If you’re buying a home priced at £150,000, in order to gain access to the bets mortgage interest rates, you’ll need a deposit of 25%. So, in the case of a £150,000 property, a first-time buyer needs to save a deposit of £37,500.
That’s a lot of money.
Add on top the solicitors’ fees and the cost of furnishing the property and you can see how buying a home is very expensive for first-timers, who don’t have the equity in an existing property to rely on as a deposit. Or, to even dip into, to get their new property just the way they like it.
That’s not all
So, even without the cost of stamp duty, which for many first-time home buyers isn’t exorbitant, buying a home is more expensive than for existing homeowner, due to the amount of cash they must save for a deposit. That’s something existing homeowners can rely upon their home to provide.
However, analysis from a number of sources, including the Office for Budget Responsibility (OBR), suggests the act of abolishing stamp duty for first-time buyers of residential property, will simply help push average UK house prices up even further.
“The effect of this reduction in future Stamp Duty Land Tax (SDLT) costs would be expected to feed through into house prices – to be ‘capitalised’ – relatively quickly. Since the relief frees up FTBs’ savings to put towards higher deposits, these higher prices can be paid,” the OBR said.
While it is still too early to tell how quickly this effect of pushing prices higher could be felt by the market, the latest house price survey from UK lender Nationwide showed house price rose in December, by more than in November.
Nationwide’s December house price index reported gains of 0.6% on the month and 2.6% on the year. That’s up from a 0.1% monthly increase and a2.5% annual gain, in November.
However, while it’s the strongest year-on-year house price gain since July 2017, it’s well below the 4.5% annual rise recorded across 2016.
As the main expense of buying a home for first-time buyers is the size of the deposit they need to secure a property, purchasing a home is almost always going to be more expensive for first-timers than other groups.