A boost for first-time buyers – and the market

Stamp-duty reforms 'will be felt further up the ladder'

The Chancellor's plan to scrap the stamp duty below £250,000 for first-time buyers will give the housing market a new boost, property experts said.

Paul Masters, a director at estate agents Kinleigh Folkard & Hayward, said: "With over a quarter of our stock currently at or under £250,000 this extra help could be the catalyst needed to kickstart the property market again." Stephen Ludlow, a director of letting agent Ludlow Thompson, added: "First-time buyers will rush to buy, which will push up prices."

The move won't just help first-time buyers, said Nigel Lewis, property expert at FindaProperty.com. "Because the property market is cyclical, this move will also benefit those at other stages of the property ladder in many regions," he claimed. "This is a significant move which will aid the ongoing property market recovery into 2010 and beyond and make a real difference to affordability for first-time buyers."

The increase in the stamp duty threshold for first-time buyers – from £125,000 to £250,000 – came into effect at midnight last night and the Government claimed it means that nine out of 10 first-time buyers will now not pay stamp duty. With the duty previously charged at 1 per cent on properties worth between £125,001 and £250,000, that could lead to a saving of up to £2,500 with an estimated 200,000 buyers in line for the boost this year.

"This news is excellent for a group of buyers who have been desperately bereft of reasons to smile for many, many years," said Drew Wotherspoon, of independent mortgage broker John Charcol. "The move will help many people achieve home ownership and we need only look at the recent extension to £175,000 for proof of this."

Last year the Government scrapped stamp duty on all properties sold for less than £175,000, but that scheme finished in December. This time round they have decided to limit the benefit to first-time buyers. However that decision could rule out some first-time couples buying their first home together if either has previously owned a property. To qualify for exemption of stamp duty, a home buyer "must not... have previously acquired a major interest in... residential property... anywhere in the world", according to the HM Revenue & Customs guidance note.

That restriction will present problems, the Council of Mortgage Lenders (CML) warned. Its definition of first-time buyers typically includes a high proportion of "returners", who have previously owned property but no longer do so. They will be excluded from stamp duty relief under the new rules.

That could in turn lead to abuse of the system, warned Karen Campbell, head of stamp taxes at Grant Thornton. "There is little clarity in how to establish if a person is a first-time buyer which could potentially encourage abuse," she said. "For example, there is currently scope for a couple that co-habit to assign the ownership of a new house to the partner who is a first-time buyer, consequently avoiding stamp duty. A similar measure in the US led to mass exploitation of the relief and substantial costs to government."

The stamp duty relief will be paid for with the introduction of a new 5 per cent charge for properties selling for more than £1m. The CML has calculated the move could raise about £250m of additional revenue from the 10,000 million-pound-plus properties sold each year. That would cover the £224m the CML calculates the Government will lose in revenue by raising the lower stamp duty threshold for first-timers.

But critics say the changes won't help the housing market. "This move alone will not lead to anything like a housing market recovery and it also fails to address the fundamental flaws with stamp duty," said Adrian Coles, director-general of the Building Societies Association. "The current 'slab' system results in the bunching of transactions at prices just below the thresholds. Stamp duty needs serious reform and we urge the Government to research how the system could be reformed to reduce the price distortions."

There is also the problem of persuading banks and building societies to lend to first-time borrowers, said Rachael Stiles, of the Fair Investment Company. "Lenders are still cherry picking the best customers, and even appear to be actively discouraging borrowers with small deposits from getting a mortgage," she said. "Borrowers with a 10 per cent deposit pay nearly £5,000 more over two years than those with a 25 per cent deposit – until lenders start offering better deals to first-time buyers, the market will continue to struggle."

View from the marginals: 'This is good news for first-time buyers'

Ashley Evans, Teacher

Constituency: Solihull

Lib Dem Majority in 2005: 279

The stamp duty exemption for first-time buyers is something I am very much in favour of. My partner and I were first-time buyers about five months ago, so it won't apply to us, but I do know that for first-time buyers, people in my position, the exemption a very good thing.

I don't think it was ever going to change how I would vote. My vote would come down to education in the end.

There were no big surprises really. I was disappointed that they'd not change their minds on the increase in national insurance contributions. That will be hard for lots of people. For middleish people like me this is quite a disappointing Budget.

The charges on cider were a disappointment too. I've got family from the West Country, and that's genuinely an important economy for them. The 10 per cent increase will lose out. They will lose out on a lot of business. Both people buying and people selling.

Last time I voted Liberal. At the moment I think I would vote Labour at this one, but I'm still not sure. I was just left feeling a little bit flat. There was nothing there that said, "Wow, that's really going to work; that's a good idea." It's not that I'm a huge Labour supporter – I just wouldn't put my trust in anyone else.