The government has scrapped stamp duty for the majority of first-time buyers to help more young people get on the housing ladder.
In today’s (22 November) Budget, chancellor of the exchequer Philip Hammond announced the tax would not be paid on first-time buyer purchases up to £300,000.
He said the move would cut stamp duty for 95 per cent of first-time buyers and abolish it altogether for 80 per cent of first-time buyers.
To help first time buyers in very high price areas such as London, stamp duty will be scrapped on the first £300,000 of the purchase price of properties up to £500,000 - an effective reduction of £5,000.
Mr Hammond said: “When we say we will revive the home-owning dream in Britain, we mean it. We do not underestimate the scale of the challenge. But today, we have made a substantial downpayment.”
However Anthony Rushworth, founder of housebuilding investment platform Homegrown, said the centrepiece of Mr Hammond's Budget was not the epic move it seemed.
“There are plenty of reasons for first-time buyers to be jumping for joy on the face of it but, in reality, they only pay stamp duty of £1,500 on average.
“Sparing them from this tax might not cause the Exchequer any loss of sleep but all this will likely do is feed into higher prices for the narrow band of properties they are fighting over.
“This is the problem with strategies that boost demand without addressing the fact there are too few homes being sought by too many buyers.”
The government has come under pressure to reform stamp duty after rising house prices have led to soaring costs for buyers in areas such as London and the south east.
Stamp duty was reformed in 2014 so the tax was 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 at higher thresholds, pushing residential stamp duty revenues to a record £8.56bn in 2016.
However, analysis by EY shows much of this increase has come from the additional 3 per cent charge on second homes and buy-to-let properties announced in 2016, disguising an 8 per cent drop in transactions on average across the country.
In the capital, 30 per cent of the SDLT receipts have been paid by the 2 per cent of properties that are sold for more than £1m, while London transactions are down 16 per cent and new home starts are 30 per cent lower than in 2015.
The chancellor’s move will be seen as a response to the growing popularity of Labour leader Jeremy Corbyn, who outperformed expectations in the June General Election on a tide of young voters disillusioned with the status quo.
But critics of the policy have suggested it will do little to improve affordability and could merely inflate prices even more, as buyers rush into a marketplace already in the grip of a severe supply shortage.