Stamp Duty insanity: the impact of the Budget on first-time buyers, homeowners and buy-to-let landlords

George Hay Chartered Accountants

By all accounts, it’s unlikely that you would have missed the attention-grabbing Stamp Duty headlines following the Chancellors Autumn Budget last month.

On the afternoon of the 22 November, amongst other things, Philip Hammond announced that Stamp Duty for first-time buyers would be abolished on residential property with a purchase price up to £300,000, effective immediately. Previously, the tax was charged on all property with a purchase price exceeding £125,000. The aim of the new policy is ultimately to provide more homes and reverse the decline in home ownership, across the UK and particularly amongst the younger generations.

Property with a purchase price exceeding £300,000 but not exceeding £500,000 will attract Stamp Duty at 5% of the value above £300,000 and property with a purchase price exceeding £500,000 will not be eligible for any relief.

The announcement rattled many first-time buyers who had recently completed on a house purchase and those who were due to complete shortly after the Budget. HMRC has since confirmed that those who completed a property purchase on or after 22 November will be able to claim Stamp Duty refunds online.

This isn’t the first time we’ve seen the Government tamper with Stamp Duty Land Tax (SDLT); it is often a popular target for reform and has been subject to several big changes in recent months and years. Now that the initial furore has died down, industry professionals have begun to consider the true impact of this latest adjustment and it may just surprise you…

First-time buyers

Shortly after the Budget, the Office for Budget Responsibility (OBR) predicted that the stamp duty cut would only serve to push house prices up by around 0.3% and so any potential savings would eventually be undermined.

The average first-time buyer may initially find that they end up with a little extra cash at their disposal because of the new policy and, as a result, may be able to increase their cash deposit. Those likely to benefit the most are first-time buyers with small deposits; a larger deposit, padded out with the money that would previously have covered stamp duty liabilities, will ultimately mean they are able to reduce the value of their loan and secure a mortgage on a more expensive property, albeit at a greater cost in the long-term.

It’s worth bearing in mind still that the savings to be made, for the average first-time buyer, are not huge and so the latest legislative changes will only speed up the saving process so much.

In addition, the effects of the stamp duty cut may not be felt at all in certain parts of the country; a significant proportion of homebuyers in the North, for instance, would not have had any stamp duty liabilities previously and so nothing much will change for them. Buyers in the South East will make reasonable savings, but the monetary impact will undoubtedly be greatest for those looking to get on the property ladder in London.

The average London buyer is likely to benefit significantly more in monetary terms, cutting their stamp duty liabilities by more than 50% and saving thousands, however this is still unlikely to offset the massive deposits required to purchase property in the city.

In short, though perhaps a step in the right direction for first-time buyers struggling to save enough money to fly the nest, the new rules are not going to revolutionise the property market and there is still plenty more to be done if home ownership is ever going to be affordable for all.

Existing homeowners

Some industry experts expect that the policy will benefit those who already own their own home more so than first-time buyers, both in monetary terms and as a result of increased demand.

Should house prices rise and first-time buyers look to take advantage of their new-found ‘purchasing power’ homeowners could well benefit from making a little extra profit on their property were they to sell up. Furthermore, homeowners still living in their first home and who may be considering a move up the ladder could benefit from an upsurge in demand for the type of home they own. For these people, now could be the perfect time to come to market.

An uplift in demand might be good for sellers, but it’s unlikely to benefit first-time buyers, particularly if demand exceeds the supply of suitable homes, which are already thin on the ground in some areas. Increasing prices and a lack of available homes will mean that, for many, owning a property remains just out of reach. 

Landlords

For buy-to-let landlords looking to add to their portfolios, the stamp duty cut is likely to mean more competition from first-time buyers when it comes to snapping up property. As a result, the stamp duty cut has been heralded, by some industry professionals, an indirect attack on landlords.

Since landlords still have the 3% stamp duty surcharge to consider when calculating the cost of a property purchase, first-time buyers that no longer have to bear any SDLT cost may have more room to negotiate than landlords going forward. In addition, as more first-time buyers get set to purchase property, landlords could see their property yields shrink significantly.

Despite this though, landlords retain the ability to act faster than first-time buyers when it comes to purchasing property. Add to that the fact that home ownership is not likely to become the norm for the younger generation anytime soon, it would seem that rental properties very much still have a role to play in the market.

We understand that keeping costs to a minimum can be a concern; whether you’re taking those first precarious steps in the property market or whether you’re planning on expanding an already established portfolio. The volatility and changeability of the market, as well as Government policy, can leave your plans and aspirations hanging in the balance.

If you’re unsure of what your next steps should be, given the recent announcements, then look no further. We will provide practical and proactive advice, reassurance and guidance to settle your nerves and eliminate some of the reservations you may have.

Our aim is to help you get your property portfolio or business operating as efficiently and cost-effectively as possible. We can work with you (and other trusted advisers such as your letting agent) to identify risks (and solutions), as well as opportunities to strengthen your operation and ultimately maximize your investment.

To find out more about how we can work with you, no matter what the current state of the market may be, call us today on 01480 426500 or fill in one of our online enquiry forms here.

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