Anger as Government gives up on first-time buyers Stamp Duty break
Posted on 3rd December 2011
Chancellor George Osborne has not extended the Stamp Duty holiday for first-time buyers despite massive lobbying from the mortgage and estate agency industries.
The decision has provoked fury, with critics saying that the Government had not meant what it said about kick-starting the housing market.
The Government, however, says the Stamp Duty break has proved “ineffective” and it will end, as planned, on March 24. It intends to produce proof of how it has not worked.
The RICS warned that ending the Stamp Duty holiday could distort the market with a mini boom and bust.
It said: “By choosing to end the relief in four months rather than immediately, there is a clear risk that there will be a spike followed by a dip in the housing market as buyers rush to take advantage of the relief before March.”
It said it was “hardly surprising” that the Stamp Duty break had failed to help first-time buyers, given the lack of affordable mortgages and homes on the market.
In walking away from the Stamp Duty concession, the Government will instead concentrate on other measures announced in its new housing strategy, notably its controversial mortgage indemnity scheme on which it has now unveiled a few more details.
The Chancellor revealed that the Government will underwrite the 95% mortgage scheme, which is available only for new-build purchases, by up to £1bn.
The Autumn Statement said: “The Government will take on a contingent liability which will build up in line with purchases under the scheme, to a maximum of £1bn.”
Under the scheme, taxpayers will be responsible for 5.5% of the value of each home purchased. Builders will put 3.5% of the value of each home sold under the scheme into a funding pot, which will be called upon by lenders if the properties are repossessed at a loss.
The initiative aims to help 100,000 households purchase a new-build home with a 5% deposit.
But it is unclear how many first-time buyers have succeeded in getting on to the housing ladder because of the current Stamp Duty holiday, although evidence is that they have melted away.
According to the National Association of Estate Agents’ latest and possibly ill-timed report, the proportion of first-time buyers fell to just 16% in October from 23% the month before – despite the Stamp Duty holiday exempting first-timers on purchasers of up to £250,000.
The Government says it will publish analysis showing that the tax break has not helped boost first-time buyer numbers.
Calls to extend the break had come from various organisations, including the Council of Mortgage Lenders, Nationwide, Legal & General and others.
The NAEA said there was little in the Autumn Statement to give comfort to the property industry, while Robin King, director of asset management firm Movewithus said the Chancellor had failed to tackle the “first-time buyer crisis”.
He said the mortgage indemnity scheme would be of little help to most people, and said the Government should have tackled lending practices.
CML director general Paul Smee said: “It is disappointing to see the Government withdrawing the stamp duty concession that currently benefits first-time buyers.
“While the concession may not have stimulated additional demand, it was a significant help to home owners entering the market and its removal runs counter to the themes of the new housing strategy. It is likely that we will see a bunching of eligible first-time buyer transactions early next March to beat the expiry date on the concession.”
Charles Haresnape, managing director of Aldermore Mortgages, said: “First-time buyers need as much help as possible and the reintroduction of Stamp Duty on purchases below £250,000 will be a significant disincentive.”