The threshold's higher but the door stays shut

Tax changes designed to bring new blood into the market are only helping those who find a cheap home, finds Laura Brady
Click to follow
The Independent Online

The lifeblood of the UK's housing market - first-time buyers - has been threatening to run cold for the past year.

The lifeblood of the UK's housing market - first-time buyers - has been threatening to run cold for the past year.

Despite a slowing property market, high prices continue to stop first-timers from grabbing the bottom rung of the ladder.

In February, the percentage of "sale agreed" deals represented by first-timer buyers fell to just 10.1 per cent - close to an all-time low, according to the National Association of Estate Agents (NAEA).

But then in mid-March came the Budget, and Gordon Brown's doubling of the 1 per cent stamp duty threshold to £120,000. This helped buyers save up to £1,200 on the cost of a property and inspired fresh confidence in the market. Since then, the industry has been holding its breath for signs of a pick-up.

New figures from the NAEA show that, in March, first-time purchases made up 22.3 per cent of house sales - more than double the figure for February. This fillip was down to people who "anticipated a rise in the [duty] threshold and held off buying in February", says spokeswoman Liz Holloway.

Despite this, the average cost of buying a first home in the UK - £125,498, according to Nationwide - remains some way above the new stamp duty threshold. And that's just the average; in many parts of the country, first-time buyers have become extinct. "They were priced out of the market about three years ago," says Avril Reynolds, manager of Reeds Rains estate agents in the Cheshire village of Holmes Chapel. "[Changes to] stamp duty have made no difference here as the average house price is now around £250,000."

This downbeat view is supported by recent research into mortgage sales involving first-timers - which could be considered a more accurate indicator than the NAEA figures as it reflects only those property deals that actually go through. The Council of Mortgage Lenders (CML) found that the number of people taking out their first home loan did not rise significantly from February to March. (First-time buyers accounted for 32 per cent of loans completed in March, barely 3 per cent up on February.)

While mortgage brokers report that there has been more first-timer activity over the past few weeks, few attribute this to tax changes. "It's good to see these buyers coming back, but I'm afraid this has little to do with stamp duty," says Paul Hearnden, managing director of My Mortgage Direct. "Rather it's stable interest rates and keenly priced mortgages. After all, none of my clients has bought a property for as little as £120,000 in years."

Rather than see future governments raising the stamp duty threshold little by little, many in the industry would prefer wholesale reform. They would like the current system - whereby tax is calculated as a percentage of the full house price - dropped and stamp duty paid only on the value above the threshold.

"After all," says James Cotton at broker London & Country, "it seems ludicrous that you pay nothing on a house costing £119,000 but £1,200 on a house of just over £120,000."

Some first-time homebuyers, however, have benefited from the Chancellor's recent tinkering with the tax.

Katie Groves, a 23-year-old receptionist and student, spent nearly a year looking for an affordable first property in Nuneaton, Warwickshire. "I had a budget of £100,000 and my life savings as a deposit, but I was still going to borrow extra for the stamp duty."

Things started to look up for Katie when, just after the limit was lifted, she found a bargain two-bedroom home on the market for £110,000. "Saving £1,100 in stamp duty helped me afford a mortgage," she says.

Looking for credit card or current account deals? Search here

Comments