The plan, which was reported in yesterday’s (16 October) Evening Standard, could result in big savings for young families struggling to get on the housing ladder, particularly in areas such as London.
It comes as the Conservative government faces growing pressure to appeal to younger voters forced to save for longer and longer to afford a deposit or rely on the so-called bank of mum and dad to help them.
But while the move may help to ease the burden on young buyers, there are fears that without an increase in supply it could simply boost house prices even further.
This would not be the first time a government measure aimed at helping first-time buyers has been accused of stoking house prices further.
The government's announcement earlier this month that it would pump an extra £10bn into Help to Buy also faced this criticism since it increases demand but does not address the supply of homes.
According to Hometrack the number of first-time buyers in London has fallen by 12 per cent since 2014 to 42,400 in the last 12 months.
Meanwhile London’s share of first-time buyer property purchases is down to 12 per cent - the lowest level since 2000.
Richard Donnell, insight director at Hometrack, said: “Any move by the government to reduce the impact of stamp duty on housing market activity and potentially offer savings amounting to several thousand pounds for first-time-buyers is welcome.
“However, stamp duty is just one consideration impacting the ability of first time buyers to access the housing market. Mortgage affordability testing remains a major hurdle for renters looking to transition into home ownership as well as stamp duty.
"This measure is likely to provide modest support for first time buyer demand but with limited impact on house prices."
According to figures from Lloyds, first-time buyers are shelling out an average of £1,653 on stamp duty as the average price of a starter home reached a record high of £207,693 in 2017.
In Greater London, where the average first property costs almost £410,000, 100 per cent of first-time property buyers now pay stamp duty, along with 98 per cent of those in the south east.
Reforms introduced in 2014 led to the tax being paid on the amount above certain price thresholds rather than on the total value of the property, with the aim of making the system fairer.
But spiralling property prices have led to more and more people paying the tax, pushing residential stamp duty revenues to a record £8.56bn in 2016.
Several mortgage brokers recently told FTAdviser they backed a stamp duty holiday for first-time buyers.
Andrew Montlake, director at London-based Coreco Group, said: “I think in general it seems unfair to add to the costs for first-time buyers' with stamp duty and I would like to see this removed for this section of the market, certainly up to a certain level.
“This is definitely a move that could help prospective buyers to get on to the market, but we have to be careful that this will not just simply boost house prices further.”
simon.allin@ft.com
