It would be a huge mistake to fall for any changes that might be announced in todays Budget on Stamp Duty for first time buyers.
In what would resemble blatant electioneering just a week or so before Gordon Brown calls a General Election, the Chancellor is predicted to remove the need for 1st time buyers to pay Stamp Duty on the homes they buy up to a value of £250,000. “Ministers are behaving like drunken sailors on shore leave” says Pryor. “They seem to be offering money to any casual passer-by in the mistaken belief that we won’t notice they are morally and fiscally smashed!”
There are three reasons why a budget give-away like this is a mistake;-
Firstly, the number of first time buyers (according to a written answer to a question from the Opposition last November quoting the Council of Mortgage Lenders2) is at an historic low having fallen by 67% in the past decade. Nearly 600,000 1st time buyers bought in 1999 which fell to below 400,000 at the peak of the market in 2007 and then to less than 194,000 in 2008. First time buyers, it would seem are an endangered species or what Labour would call ‘an oppressed minoirty!”
These are the number of 1st time buyers each year in the past 10 years according to CML.
1996 465,300
1997 501,500
1998 525,200
1999 592,400
2000 500,200
2001 568,200
2002 531,800
2003 369,600
2004 358,100
2005 372,200
2006 400,500
2007 357,100
2008 193,600
Most of these people would benefit from removing the 1-3% Stamp Duty charge as they will be spending less that £250k and we all like to pay less tax but I expect that last year there were less than 150,000 1st time buyers and this year there could be even fewer. Artificially propping up the housing market in a property equivalent of ‘Bangers for Cash’ just distorts the market and delays the inevitable.
Next, with interest rates at record lows, it is irresponsible to encourage property ‘virgins’ to invest in property when rates can only rise from here removing the tiny saving that they make on the ‘bribe’ they took to buy in the first place? If a 1% saving is enough to convince you to buy a property today then you haven’t done your own budget.
Finally, whilst many people including the NAEA and RICS have encouraged the Government to look again at changing the ‘slab’ like system of the current Stamp Duty system – perhaps to a progressive tax, the housing market has bigger challenges. With yields on residential property often at just 4-5% and with buyers unable to find the 25% deposits that most of the few remaining mortgage products demand, houses still remain unaffordable to most of those who would like to be described as a 1st time buyer. The average age of someone buying their first property is still mid-thirties. These people don’t need a couple of grand of the cost of buying a house, they need cheaper prices and fairer credit terms.
The average home in this country costs over £160,000. Today’s first time buyers are paying over £120,000 and there are thousands who can’t afford this. Imagine how few of the next generation will be able to describe themselves as home owners even if Labour are around in two months time to enact the kind of madness that the Chancellor is said to be contemplating.