0% SDLT for First Time Buyers – too good to be true?

Stamp Duty – 0% for First Time Buyers

On 22 November 2017, the Treasury announced that Stamp Duty Land Tax was to be abolished for first time buyers, purchasing a home worth up to £300,000. Many first-time buyers, including many of our own, were thrilled at the changes. However, will this lead to a rise in house prices?

Citing a fall in the number of 25-34 year olds owning a home from 59% to 38% since 2005, Phillip Hammons said “Put simply, successive governments over decades have failed to build enough homes to deliver the home-owning dream that this country has always been proud of.”

He reiterated a pledge to build 300,000 homes a year and announced extra money to support building, including £34m to develop construction skills and provide new workers for the building sector, and £8bn of guarantees for private housebuilders and developers in the build-to-rent sector. Last year just over 217,000 new homes were constructed.

Hammond also announced a consultation on the barriers to landlords offering longer tenancies to those who want them – currently many tenants are offered just 12-month contracts.

Dan Wilson Craw, director of the campaign group Generation Rent argued the real winners would be people with properties to sell: “In areas where first-time buyers are competing with investors for homes, no stamp duty to pay will give them more purchasing power,” he said. “But where they’re competing with each other it just means they have more cash with which to make an offer.”

The Treasury have stated that this measure would benefit 95% of first time buyers who are currently liable to pay stamp duty.

Currently Stamp Duty is calculated as follows:

Table 1 – Source – Gov.uk

Property or lease premium or transfer valueSDLT rate
Up to £125,000Zero
The next £125,000 (the portion from £125,001 to £250,000)2%
The next £675,000 (the portion from £250,001 to £925,000)5%
The next £575,000 (the portion from £925,001 to £1.5 million)10%
The remaining amount (the portion above £1.5 million)12%

 

First time buyers can also now claim a discount (relief) so that they don’t pay any tax up to £300,000 and 5% on the portion from £300,001 to £500,000.

You’re eligible if:

 

  • you, and anyone else you’re buying with, are first-time buyers
  • you complete your purchase on or after 22 November 2017

 

If the price is over £500,000, you follow the rules for people who’ve bought a home before (outlined above).

As of November 2017, the average price of a Property in the UK is £226,071. The average price paid by a first time buyer is £207,693, however this average is largely skewed by the average price paid by a first time buyer in London – £410,000.

In the past five years, the average price paid by a first time buyer has grown by 50% (or £69,025) from £138,663 to £207,693 – outperforming growth across the entire market at 42%.

As house prices for a typical first time buyer property have risen, there has also been a growing trend in longer mortgage terms than the more traditional 25 year term. In 2007 some 48% of first time buyers had a mortgage term of between 20 and 25 years, whilst 38% were for between 25 and 35 years.

By 2016 this had markedly reversed, with 56% of mortgages at a term of 25 to 35 years or more, while the 20 to 25 year mortgage terms have fallen to 26%.

The Office for Budget Responsibility have said that the tax break to First Time Buyers is also likely to increase prices across the market by 0.3% – the main gainers being People who already own Property.

Other measures designed to provide more homes include:

  1. The ability for Local Authorities to charge double council tax on empty homes;
  2. £44 billion in funding, loans and guarantees to boost the housing supply by 300,000 new homes per year by the mid 2020s;
  3. A focus on city centre developments, concentrating on transport hubs with new rules on the minimum density of homes;
  4. A consultation on ways for planning permission to fast-track first time buyer developments;
  5. A review into why home with planning consent are not completed;
  6. A consulation on the barriers to landlords offering longer/more secure tenancies; and
  7. Borrowing caps for local authorities will be lifted to allow them to build more homes.

Previously similar measures have been put in place. 10 years ago, during the financial crisis, Alistair Darling (Labour) increased the starting threshold for the tax for all buyers, from £125,000 to £175,000. Later he also introduced a payment holiday for first time buyers.

How the new £300,000 stamp duty threshold will affect various towns

Table 2 – Source – Stamp duty cut for first-time buyers will push up prices, warns OBR – The Guardian

CityNumber of properties for salePercentage priced at less than £125,000Percentage priced at less than £300,000
London 49,7330.3%5.3%
Cambridge 3040.3%16.8%
Bath 4860.8%28.6%
Oxford 5840.9%28.1%
Brighton 7562.1%34.4%
Bristol 1,8283.2%65.5%
Carlisle 61651.5%97.6%
Blackpool 1,16262.0%96.0%
Bradford 1,53063.5%96.0%
Hull 1,12069.0%98.2%

 

The OBR’s calculations on the impact of the reform found it would boost the number of first-time buyer purchases by about 3,500 a year but these “will displace other purchases by those who would have bought and paid the main rate of [stamp duty] and, in some cases, the additional properties surcharge [a 3 percentage point surcharge on buy to let and second homes]”.

Property market experts said the measure was likely to boost market activity by reducing the upfront costs of first time buyers, but would not change the underlying issue of high deposit sizes in expensive areas. The average deposit in London for first time buyers stands at just below £100,000 (not including stamp duty).

Neal Hudson, analyst at Residential Analysts, said of the reform: “For people who at the moment having no hope of buying, it’s not going to change their prospects.”

If you are a first time buyer who is already in the process of purchasing a property, you may need to complete some additional paperwork for your conveyancer or solicitor to claim the relief.

If you have any queries in relation to Stamp Duty Land Tax, our residential conveyancing team can help. Call us today on 0121 448 3107 or email us at legal@suttonsolicitors.com

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