How is stamp duty exception for first-time buyers affecting the market?

Posted by Mark Lloyd, Property Mastery Academy on 6 August 2018 | Comments

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In November 2017, the government made many first-time buyers exempt from paying stamp duty land tax in England, Wales and Northern Ireland.

The exemption means first-time buyers no longer have to pay stamp duty on properties costing up to £300,000 while first-time buyers buying properties up to £500,000 don’t have to pay stamp duty on the first £300,000.

stamp duty for first time buyers

This is part of the government’s efforts to make it easier for first-time buyers to get on the property ladder. Chancellor Philip Hammond predicted 80% of first-time buyers would pay no stamp duty at all, while 95% would see a reduction in the amount they pay.

How much can first-time buyers save?

In April this year, HMRC released figures that showed that in the four months since its introduction, 159m worth of relief has been claimed in total by first time buyers. 49% were from London and the Southeast (these regions have the highest average house prices). In London, the average saving for first-time buyers was £4,300 while it was only £800 in Northern Ireland.

Overall, £2,300 is the average saving and 69,000 first-time buyers have benefited from the exemption.

What about deposits?

However, for most first-time buyers, saving up a deposit is the biggest barrier to getting on the property ladder.

According to a report from the estate agent Hamptons International, the average single first-time buyer in England and Wales would need just over 10 years to save up a deposit of 15%.

But for those able to get a small deposit together, there are government schemes to help them buy their first property. The Help to Buy Equity Loan scheme is for buyers of new-build properties. In this scheme, a deposit of only 5% is required – and rather than taking out a mortgage for the remaining 95% of the property value, the government lends 20% of the property price, or up to 40% in London. The loan is interest-free for the first five years.

Hamptons International estimates that saving up the 5% deposit would only take five years and nine months in London, and three years and nine months on average in the rest of England and Wales.

Alternatively, there are government schemes to help you increase the size of your deposit. The Help to Buy ISA allows first-time buyers to save an initial £1,200 followed by a maximum monthly contribution of £200 and the government then contributes 25% to these savings up to a maximum of £3,000.

What has been the impact of the exemption?

Further data from HMRC shows a slowdown in housing transactions in the first quarter of this year.

Quarterly transactions dropped from 333,5000 in the last quarter of 2017 to 267,000 in the first three months of this year – a 20% fall.

This isn’t unusual, as quarter one figures usually show fewer transactions due to the seasonal nature of the residential property market – but it is the largest quarterly fall since 2014/15. However, this fall was across all price bands and property transactions including those on which higher stamp duties apply.

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