The Chancellor has bowed to the lobbying momentum for stamp duty reductions that has built up in the run up to the Budget. His political theatre at the end of his speech played to that audience. Undoubtedly the measure will be welcome to those who are about to purchase their first property for £500,000 or less – even if they had purchased today before the budget speech. Those who purchased before today may feel a little peeved to have missed out.
It is questionable whether this will have a significant impact in terms of improving overall affordability for first time buyers, particularly in an undersupplied market. The concern is that this measure will continue to stoke short term house price inflation – so that the overall cost of the home may not be reduced by the full SDLT saving – representing a windfall to house builders and benefiting lenders. This is likely to be more evident in those parts of the UK (such as London and the South East) with the most demand.
The relief does not apply at all to purchases over £500,000 leading to a “cliff edge” at that value which is likely to create distortions in the market. Given the average price of a home in London is not far short of £500,000 this leaves little headroom for many prospective first time buyers in London.
The cost of this measure to HM Treasury is estimated to exceed £3billion over the next 5 years or so. Could this money have been more effectively applied through further stimulus to the supply of new affordable homes both for purchase and rent?
It is surprising that the Chancellor, given his reputation for detail, does not seem to have taken into account a report written by HMRC in November 2011 which concluded that the last time a similar relief was introduced, it had no material impact on the level of purchases.