Budget 2017: Perplexity of the housing market

Budget 2017: Perplexity of the housing market

It should have been a rousing speech showcasing government plans to dig the UK economy and housing market out of the trenches, considering it was the Autumn Budget and forecasts were bleak

Rousing it was not, but there was one element of interest. Chancellor Philip Hammond announced that stamp duty for first-time buyers on all properties worth £300,000 or less in the UK would be abolished. In London, for homes worth up to £500,000, first-time buyers will pay no stamp duty on the first £300,000.

The chancellor 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.

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“Today we set out an ambitious plan to tackle the housing challenge.”


First-time buyers

On the face of it, the headline-grabbing pronouncement is a trigger to draw more first-time buyers into the market, while the other proposals announced spur the building of more homes. But will they work?

According to mortgage experts, the stamp duty abolition will create demand from first-time buyers and thus lead to even higher house prices.

The average first-time buyer deposit was £32,899 in the first six months of 2017, some 16 per cent of the purchase price, according to figures released by Halifax in July.

In London, the problem is far worse. The largest deposits being put down are up to £106,577, more than three times the national average and a four-fold increase in the past decade from £26,701.

Brian Wilkinson, managing director, corporate and professional qualifications at London Institute of Banking and Finance, which awards CeMAP qualifications, said: “Any measures that help first-time buyers take the first step on the housing ladder are welcome.

Key Points

The Chancellor Philip Hammond announced some features affecting the housing market in the Budget

Stamp duty relief will inflate prices if more homes are not built quickly

There was no benefit for landlords

“Increased funding and measures to promote more house building, along with the abolition of stamp duty for first-time buyers, could be a helpful boost for the sector.”

But Simon Wagman, partner at accountancy Blick Rothenberg, warned: “Stamp duty relief for first-time buyers is a great headline comment, but while supply is far too low, this will initially only increase house prices and inflate the market.”

Even the Office of Budget Responsibility (OBR), the independent body charged with analysing public finances, said the abolition of stamp duty meant house prices would go up by twice the amount saved by first-time buyers owing to a tax cut. This means the policy would only benefit home-owners, not first-time buyers.

It has been said many times the UK housing market is broken. On the one hand, Mr Hammond has laid out the blueprint he thinks will fix it; while on the other, he stresses there is no magic bullet.

Alongside the stamp duty plans, the chancellor announced a raft of other measures to drive up the UK housing stock and create 300,000 new homes a year by the mid 2020s.