24 October 2023 – There are rumours the Treausry is considering to put in place measures to support the property market. Stamp duty cuts are rumoured and first-buyers might get help from the government.
Next month, the Chancellor of the Exchequer will reveal the Autumn Budget and as always, there are rumours of what will be in it. Some news outlets have reported that the Treasury is considering lending first-time buyers a helping hand.
With the rise in interest rates, mortgages have become much more expensive, making buying a home a challenge for many. In recent months the housing market has markedly slowed down, in response to worsening affordability.
If the rumours are to be believed, then first-time buyers will get help from the government to get onto the property ladder.
Mortgage Guarantee Scheme Among Other Help For First-Time Buyers
Back in April 2021, Rishi Sunak, the then Chancellor, introduced the mortgage guarantee scheme to help first-time buyers onto the property ladder.
The scheme is designed to help first-time buyers with only a 5% deposit to access a mortgage. The government guarantees part of the mortgage to reduce the risk to the lenders.
According to government sources, the scheme has helped over 24,000 households. It is due to end in December 2023, however, there are reports that Mr Hunt is considering to extend the scheme for another year.
Since its introduction, mortgage rates have risen sharply, making monthly payments a lot more expensive. This begs the question if this scheme is still achieving its aim. Now it’s not only the deposit that wannabe first-time buyers struggle with, but also the cost of mortgage repayments.
Another possible measure the Treasury is apparently looking at is the creation of a new Individual Savings Account (ISA) to help people save for a deposit for their first home.
This is not a new idea, as various types of ISAs were introduced in the past to encourage people to save for their first house. The most recent, the Help to Buy ISA, ended at the end of March this year, ending another measure of help from the government for first-time buyers.
One of the issues with the Help to Buy scheme was that it didn’t keep up with rising house prices. It provided savers with 25% from the government for a house worth up to £250,000 in England and £450,000 in London.
However, the sharp price increases during the pandemic meant that the average house price rose above those limits. So any new scheme that aims at offering first-timer buyers help with saving for a deposit will need to take rising prices into consideration.
Stamp Duty Cuts Are On The Table Again
There are also rumours that the government is thinking about cutting stamp duty land tax (SDLT). While no details are known, it’s been reported that the changes are likely to consist of changes to the thresholds.
Unlike the extension of the mortgage guarantee scheme, this measure isn’t planned to be part of the upcoming Autumn Budget by the Chancellor. Instead, it has been suggested that stamp duty changes will appear in the Conservative manifesto.
Currently, properties with a value of up to £250,000 are exempt from stamp duty. Properties between £250,001 and £925,000 are taxed at 5%. Between £925,000 and £1.5m stamp duty is 10%.
For properties of a value over £1.5m, 12% SDLT applies. First-time buyers don’t have to pay stamp duty on properties with a value of up to £425,000 and pay 5% for properties between £425,001 and £625.000. Above the higher threshold, the same rules as for homeowners apply.
It is not clear which of these thresholds the government is planning to change. But with a general election likely to take place next year, we are bound to find out soon.
The recent reports about possible measures the government is planning to support the housing market sound like an attempt to convince voters that the Conservatives are still the best party for the country.
However, in our opinion, the government clearly doesn’t understand the property market or the challenges faced by it and buyers and sellers. The fundamental issue is a lack of supply, especially when it comes to affordable houses.
Property prices have risen by so much, especially in the last few years, that many first-time buyers have been priced out. One reason for this price hike was the sudden increase in demand prompted by the government’s stamp duty holiday.
The hike in mortgage rates, in part due to Liz Truss’ ill-fated mini-budget, has put further pressure on affordability for many. While the effects of the mini-budget can’t be blamed for the current high mortgage rates, it has accelerated the rise.
So what is likely to happen if the government ups the stamp duty thresholds? In the long-term, probably not much. But in the short-term it could cause a similar rush as the stamp duty holiday did.
This increase in demand, without adequate supply, will push up prices again, worsening affordability, particularly for first-time buyers. And while ISAs might help some first-time buyers, if house prices continue to rise and mortgage rates stay at elevated levels, they won’t help many.
So while help from the government for the housing market is welcome, we believe what is needed is a complete revamp of the stamp duty system and the selling/buying process in general.
And more importantly, the lack of supply needs to be addressed urgently. Tinkering with the stamp duty thresholds just won’t cut it.