Stamp duty will be scrapped for first-time buyers purchasing properties costing up to £250,000, the Chancellor said today.
The move, which will apply during this year and next year, will mean nine out of 10 people buying their first home will not be liable for the tax.
The change will offer some relief to hard-pressed first-time buyers, who currently have to save up deposits averaging 25% of their home's value.
It will be funded through the introduction of a new stamp duty band of 5 per cent on properties costing more than £1 million from April next year.
Around 92 per cent of first-time buyers would have been exempt from stamp duty during 2009 if the threshold had been £250,000, according to the Council of Mortgage Lenders.
People buying their first home in London and the South East will be the biggest winners as a result of the increase, with 74% of first-time buyers in the capital and 72 per cent in the South East buying homes priced between £125,000 and £250,000 during 2009, followed by 61 per cent of people in the South West.
But at the other end of the scale only 15 per cent of buyers in the North are likely to benefit from the move, rising to 20 per cent in both Wales and Yorkshire and Humberside.
However, home-buyers in London and the South East are likely to be hardest hit by the introduction of the new 5 per cent stamp duty band on £1 million-plus properties, with 81 per cent of all homes valued at this level located in these regions.
The doubling in the stamp duty threshold for first-time buyers was welcomed by estate agents, mortgage lenders and housebuilders, but many groups expressed disappointment that the Government had not gone further in reforming the tax.
Peter Bolton King, chief executive of the National Association of Estate Agents, said: "For thousands of first-time buyers the dream of getting on to the property ladder was slipping out of reach.
"This announcement has added a new rung to the property ladder, one within reach of thousands of young families."
But he added that the group still believed more stamp duty reform was needed.
The Home Builders Federation said the move provided a "huge boost to the housing market" and a "massive fillip to hard-pressed first-time buyers".
The Royal Institution of Chartered Surveyors said the reduction in stamp duty could help to push annual housing transactions back over the one million mark for the first time since 2007. But it added that greater reform was still needed.
Stamp duty is currently charged at 1 per cent of the purchase price on properties costing between £125,000 and £250,000, although from midnight tonight first-time buyers will be exempt from this band.
People buying a property for between £250,000 and £500,000 have to pay 3 per cent of the purchase price in stamp duty, while the tax is charged at 4 per cent on homes costing more than £500,000.
The new 5% band on homes costing more than £1 million will come into force from April next year.
But commentators argue that the way the tax is charged distorts the property market, as people buying a home for £251,000 have to pay stamp duty of £7,530, while those buying one for only £249,000 pay just £2,490, or nothing at all if they are a first-time buyer.
They want the current "slab" system to be changed to a progressive one, under which the higher rates are only charged on the proportion of a property's price that is over the various thresholds.
Drew Wotherspoon, director of marketing at mortgage broker John Charcol, said: "The current structure significantly distorts the market around the threshold levels; however, there is a very simple way to address this.
"We have argued for many years that stamp duty should mirror the way that income tax is charged, with the rate of tax only payable on the amount over certain thresholds."
Nicholas Leeming, commercial director of property website Zoopla.co.uk, also criticised the new 5 per cent band.
He said: "Taxing the rich makes a good headline, but it won't raise much money for the Government's fiscal black hole.
"Only 4,105 homes sold above the £1 million mark in the last year. With the total stamp duty tax take reaching almost £3 billion last year, this measure will contribute only roughly 2 per cent extra tax, a tiny amount.
"Raising stamp on £1 million homes is a cynical move by the Government to tax home-buyers who tend not to be their core voters."Reuse content