The Office of Budget Responsibility (OBR) has damned the budget proposal to abolish stamp duty for first-time buyers for homes worth up to £300,000.
To OBR the policy will produce a “cliff-edge” effect for homes worth just over £500,000.
A rate of 5% will be charged on the value between £300,001 and £500,000.
But first-time buyers purchasing a property for £500,001 or more will not benefit from the relief at all, so a purchase at that price would be liable to £5,000 more in post-stamp duty land tax prices paid than one at £500,000.
The OBR expects the cut to push house prices up by 0.3% in 2018.
The estimate is consistent with the OBR’s published price elasticities for stamp duty changes.
To the OBR the main gainers will be people who already own property, not first-time buyers.
This is on the assumption that a temporary relief would feed one-for-one into house prices, but a permanent one will have twice that effect.
Post-stamp duty land tax prices paid by first-time buyers would actually be higher with the relief than without it – making the main gainers from the policy are people who already own property, not the buyers themselves.
A Treasury review of a temporary stamp-duty ‘holiday’ for first time buyers announced by Labour chancellor Alistair Darling in his final budget concluded that it was effectively a failure.
Darling announced the move as a response to the financial crash.
But the OBR says eligibility criteria match those of the post- crisis ‘stamp duty holiday’, although then the relief stopped at £250,000.
HMRC published an evaluation part way through that holiday and it concluded that the majority of the value of relief had fed through to higher house prices and that it “has not had a significant impact in terms of improving the affordability of residential property for FTBs.
It is estimated that most of the buyers who benefitted from the relief would have purchased property in its absence anyway.
Confirmation that the relief would end was announced alongside the evaluation.