Buying a first home is a big achievement and, in late November 2017, the government introduced permanent stamp-duty relief for first-time buyers. This meant that newbie purchasers in England no longer had to pay stamp duty on homes costing up to £300,000 and they could also gain relief on the first £300,000 of the purchase price when buying a home up to £500,000. So, what impact has house price growth had on these thresholds?
In the past four years, average house prices in England have risen by 18%, and the average price paid by a first-time buyer has increased by 16%. The proportion of homes sold in England for more than £300,000 has jumped from 32% in 2017 to a record 44% this year. As a result, more first-time buyers are having to pay stamp duty land tax (SDLT).
Our research shows that this year, over a quarter (26%) of first-time buyers paid more than £300,000 for their home, up from 17% in 2017. This is likely to equate to around 80,000 first-time purchasers having to pay SDLT in 2021, up from the 37,410 who paid it in 2017. This represents a significant increase of 114% – however, it’s worth remembering that there were 27% fewer transactions overall in England in 2017 than there have been in 2021.
On a regional basis, it is, unsurprisingly, in London and the South East, where house prices are highest, where most first-time buyers pay stamp duty – in 2021, 87% of new purchasers in the capital paid the tax, while 64% in the South East did. The biggest jump in the proportion of first-time buyers paying SDLT this year was in the South West, which has risen by 15% in the past four years to 45% today.
Drilling deeper into the data, the average price paid by a first-time buyer had already risen above £300,000 in 67 local authorities in England prior to 2021. However, rapid house-price growth over the last 12 months means another 13 areas have joined the list this year – including Surrey Heath, West Oxfordshire and Barking & Dagenham. This means that a total of 80 English local authorities out of 307 (or 26%) now have average first-time buyer prices that exceed £300,000.
If the SDLT nil-rate band for first-time buyers had kept up with house-price inflation, the exemption limit should have risen to around £348,000 today. This would exempt an additional 7% of first-time buyers, or 21,800 people, from paying stamp duty, with 19% of buyers becoming liable to pay.
We estimate that such a measure would have cost the government around £148m in stamp duty revenue this year, as rising house prices have eroded savings for first-time buyers and netted extra income for the Treasury. This figure is only slightly less than what the government would raise by increasing the stamp-duty surcharge paid by second-home buyers from 3% to 4% – a measure they were considering introducing in the last Budget.
