Nationwide Plays Down Effect of Stamp Duty Cut

The changes to Stamp Duty for first time buyers announced in the Autumn budget will have a “limited impact” on housing demand according the Nationwide.

The new initiative means that first-time buyers purchasing houses up to a value of £300,000 will not have to pay any Stamp duty. It also means that on any properties up to £500,000, no stamp duty will be enforced on the first £300,000.

Quoting from the Nationwide’s monthly price index for November, they said that “many regions, first time buyers already paid little or no stamp duty as the price of the typical first-time buyer property was below the previous threshold of £125,000”.

They went on to say that most people befitting from the new Stamp duty threshold will be buyers in London and the South east. The changes mean that in London, 11% of the first-time buyers who would have paid an average of £13,102 per purchase will now pay no tax. In contrast most buyers in the north of England will now be exempt from paying Stamp duty, but previously they would have only had to pay £100. This seems to indicate that solutions to the growing housing crisis in the UK are London-centric, with less concern for lower income areas.

"The decision in the Budget to abolish stamp duty for first-time buyers ... is likely to have only a modest impact on overall demand," said Robert Gardner, Nationwide's chief economist.

"The potential savings are more substantial for borrowers where house prices are higher, especially in London and the South East."

Jonathan Hopper of Garrington property finders was also sceptical about the affect the new initiative would have. He said, “Despite the enthusiastic reception given to the cut in Stamp Duty for first-time buyers announced in last week’s Budget, it’s too early to detect its impact in the increasingly stagnant picture painted by the Nationwide,”

“Even then, no-one should expect the Chancellor’s Stamp Duty give-away to be a silver bullet. As the Nationwide’s analysis shows, outside London it will only affect a tiny minority of first-time buyers. More importantly, stimulating demand at the bottom end of the market won’t help much if the market remains blocked at higher price points.”

“To function properly, the market relies on the whole chain working smoothly, with buyers at all levels able to move up the ladder.”

The Office for Budget Responsibility (OBR) also played down the importance of the new initiative, saying that it would play into the hands of landlords and homeowners by driving prices up. They have claimed that the lack of Stamp duty will mean that buyers have more money to compete for properties thus increasing the cost, although they conceded the change would be minimal.

The Nationwide noted a rise in house prices during the month of November, with the average price standing at £209,998,  with a 2.5% increase over the past year. Prices increased by 0.1% in November when compared with the previous month. They also noted that the continued lack of supply has kept up the growth of housing prices recently.

“While house prices may be rising, the rate of actual price growth has been stalling, reflecting the market’s current shortage of affordable housing,” says Paresh Raja, CEO of bridging specialist MFS.

“With inflation outpacing price growth, a significant number of prospective home buyers are not able to act on their property intentions.

“In part, this explains why the Government has removed stamp duty for first time home buyers; alleviating some of the financial burden affecting entry-level investors so that more people are able to get their foot on the property ladder. It will be interesting to see how this affects property prices over the coming months.”