News: Weekly News Round Up - Chancellor Targets First-Time Buyers

Fri, 26 Mar 10

The Chancellor’s last budget before the general election included the dramatic news that the stamp duty threshold for first-time buyers will rise from £125,000 to £250,000 this week.

The rise in the threshold follows the successful stamp duty holiday on properties worth between £125,000 and £175,000 that ended last year. This was seen as a key driver in improved transaction rates at the end of last year.

However, the news may not help as many potential homeowners as the government has initially indicated.

The Council of Mortgage Lenders (CML) points to confusion surrounding the definition of first-time buyers.

It says that many first-time buyers are in reality returning buyers who have rented for a period. But according to the HMRC’s strict definition of first-time buyers this group is unlikely to benefit from this latest stamp duty concession.

The CML points out that the HMRC guidance says the first time buyer must not “have previously acquired a major interest in ...residential property....anywhere in the world".

The CML says this may be difficult to verify and instead calls on the chancellor to create a far simpler concession of exempting all properties worth less than £250,000 from stamp duty.

The body estimates that around 136,000 first time buyers may still be exempt from stamp duty. However, the figure would have been more than double this if the concession were available to all buyers including those who are selling a property.

The government is planning to pay for this stamp duty holiday for first-time buyers by increasing stamp duty tax from 4% to 5% on properties worth more than £1m from next year.

CML director general Michael Coogan said: "The Budget offers a modest potential boost to the housing and mortgage market in terms of reducing transaction costs for first-time buyers, and potentially improving efficiencies for lenders. But as always the devil is in the detail, and the detail is confused. The stamp duty concession in particular looks like a tax loophole waiting to happen.”

Others are less critical of the stamp duty announcement. Paul Smith, chief executive of estate agency chain Spicerhaart said: “First-time buyers are the lifeblood of the industry and the wider economy. The new stamp duty threshold is set to strengthen the UK property market more so than any other government initiative in the last few years.

“This new measure is of national significance as it will substantially increase the number of first-time buyers coming into the property market, giving the rest of the market a much needed boost and mitigate any negative effects that the recent rise in stamp duty has had after the cessation of the stamp duty holiday.”

He added that the changes to stamp duty would be “particularly helpful to those trying to get on the ladder in London and the south east of England where property prices are significantly higher than the rest of the country.”

He also warns that first-time buyers will continue to struggle to save the large deposit needed to secure a home.  He added: “The average first-time buyer needs a 15% deposit before they can purchase their property, which is still unaffordable for most. The government should either help decrease the amount of deposit required or assist first-time buyers with finding funding through the lending institutions.”

David Whittaker, managing director of Mortgages for Business, is another to welcome the stamp duty announcement and call for further help to improve lending conditions.

He described first-time buyers as “the fuel that keeps the mortgage market alive.”

He added: “As long as they’re happy, the rest of the market tends to be happy, that’s why the new 5% stamp duty rate on £1m properties is a sideshow. Increased demand at the entry-level end of the market helps to strengthen prices. Increasing prices means investment in property. But all of this requires mortgage finance. The problem is that without injections of new finance and a dramatic increase in competition in the mortgage market, lenders will be able to maintain high rates and many would be buyers will still be left out in the cold.”   

In other property market news this week it emerged that house sales picked up in February following a slump in January. Latest figures from HM Revenue & Customs (HMRC) reveal that there were 58,000 completed sales in February, 14% more than the previous month.

February’s figure is markedly down on December’s figure of 103,000, which was largely as a result of the rush to beat the end of the stamp duty holiday.

The number of mortgages approved in February is holding steady, according to latest figures from the British Bankers’ Association.

In February 35,275 mortgages were approved by the high street banks, marginally up on the 35,154 that were approved in January.

Also this week, research from Home.co.uk has revealed the importance of ensuring properties are advertised on as many online portals as possible. Home.co.uk’s March 2010 Estate Agent Property Advertising Survey shows that estate agents with the best sales turnover rates are those that advertise their clients’ properties on 7 or more of the major portals.



By Joe Lepper


See also: Asking Price Index, House Prices and Trends by Town and Postcode, Mortgages, Life Insurance and Mortgage Protection Guide


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