Cutting Stamp Duty – will it make a difference?
27 Apr 2015 | COMMENTS: 0 | Author: Liberty Howard | News
A couple of weeks ago, the Conservatives launched their flagship policy – an extension of the Right-to-Buy scheme. Today, it’s been Labour’s turn to shake-up the property world, and they’ve done so by announcing they intend to scrap stamp duty for first-time buyers on houses up to the value of £300,000 for 3 years from 2016. This comes shortly after Miliband’s pledge that he’d peg private rent rises to inflation only, both policies in a bid to end “Generation Rent”. But is cutting stamp duty really going to help people, or is it just another policy created in an attempt to buy votes?
As we discussed in our Right-to-Buy article, it’s harder than ever to get on the property ladder right now, so cutting fees for first-time buyers is always going to be a popular move. Figures suggest that as many as 9 out of 10 first-time buyers would benefit from this policy, however, initial criticism of the policy is that – as the market is so expensive and first-time buyers are paying as much as they can for a property – cutting stamp duty may simply increase demand, causing house prices to rise and make up the difference. This means no tax revenue for the Government, property still out of reach for the buyers, and sellers with more cash in their pockets to spend on a new property – potentially inflating prices at that end of the market also.
Another major argument against the policy is that it’s not necessarily fees such as stamp duty – which would currently be £5,000 on a £300,000 property – that are preventing first-time buyers from purchasing a home, but instead the high property prices themselves. Without stamp duty, a buyer for a £300,000 house still has to raise an absolute minimum of £15,000 as a deposit, and be approved for a mortgage that is in all likelihood, many times their annual salary. In fact, many starter homes outside London and the South East cost considerably less than £300,000 – and some less even than £125,000 (the current threshold for stamp duty), meaning that this policy in all likelihood won’t change the position of most first-time buyers. However, it should be noted that the National Association of Estate Agents is behind the policy, stating that “For many, hidden costs such as stamp duty can be the difference between being able to afford a home, and not being able to afford one.“
In spite of this endorsement, you can’t help thinking that the tax relief Miliband is proposing could be better spent on building affordable starter homes instead. Labour has committed to “the biggest house building programme for a generation” – 200,000 extra homes a year by 2020, and intends to give local first-time buyers the first call on buying homes – to stop them being outbid by investors paying cash – but this seems like a policy that could be hard to implement and regulate; and still doesn’t solve the problem of many first-time buyers simply not being able to save a deposit large enough to keep up with rising house prices.
The bottom line is that if Miliband wants to see an end to Generation Rent, and is truly “determined to restore the dream of home ownership”, a stamp duty holiday – whilst it sounds nice – simply isn’t going far enough to help most people.