A few days ago, the Chancellor Philip Hammond announced the 2017 Autumn Budget. But what might the budget mean for the British housing market and how might it affect first-time buyers and existing homeowners?

The Budget contained various housing announcements, primarily aimed at increasing the available housing supply and the subsequent percentage of homeowners.

Predominantly younger first-time buyers seem to be acutely affected by the relative supply of housing: the number of 25 to 34-year-old homeowners fell from 59% to 37% between 2004 and 2015 (English Housing Survey).

The announcements contained within the Budget included a funding package of £44billion with the intention of building 300,000 new homes per year by the mid-2020s. Local authorities will also be permitted to lift borrowing caps to build new homes in expensive areas.

Whilst figures indicate that the annual supply of new homes in England must increase by between 100,000 to 500,000 per year, analysis by the RICS indicates that most of the measures will start in 2019/2020 and that 300,000 new homes per year will not be built until the mid-2020s.

As this is unlikely to address the under-supply of available homes on the market in the short-term, the main beneficiaries are likely to be existing homeowners (indeed, figures show that in October 2017, annual house prices in England increased by 5.3%, taking the average to £243,520, HM Land Registry).

Perhaps the biggest housing-related Budget announcement is in the major and permanent changes to stamp duty land tax, which is potentially targeted at younger first-time buyers.

This year’s Budget saw the announcement that stamp duty land tax will be entirely abolished for first-time buyers on house purchases of up to £300,000 in England and Wales.

Perhaps with the knowledge that the average house price in London currently stands at £488,729 and the South-East at £320,905 (HM Land Registry figures), the rate will be reduced to five per cent on properties with a value between £300,001 and £500,000 and properties with a value of £500,001 or over will be subject to stamp duty land tax at the normal rates (as detailed in Section 6.6 of this year’s Autumn Budget).

It is notable that this tax relief will only be applicable to first-time buyers of property, where the intention is to occupy the property as the sole or main residence. And in a situation where multiple purchasers are contributing towards buying a property, they must all be first-time buyers in order to gain any benefit from the changes.

Buyers who are not first-time purchases will be subject to stamp duty at the normal rate on house purchases of over £125,000. According to the Chancellor, these changes mean that 95% of first-time buyers will stand to gain from the changes to stamp duty (up to a maximum of £5,000) and that the changes mean that 80% of first-time buyers will not be required to pay any stamp duty land tax at all.

So who might the winners and losers be as a result of these changes to stamp duty land tax?

As the changes to stamp duty land tax took effect on the day of the Budget, in the short term, one immediate group of losers could potentially be first-time buyers who completed their transactions immediately prior to the budget announcement, since they will be liable to pay the existing stamp duty land tax.

Whilst on the surface the changes would appear to be a good deal for potential first-time buyers, a more detailed and recent assessment of the changes to stamp duty land tax, from the Office for Budget Responsibility (OBR) suggest that this may not be the case.

The OBR highlight that the reductions will lead to an increase in house prices of 0.3 per cent and that this measure will start to have an effect in 2018 (Box 3.1 & Box 4.3, OBR Economic and fiscal outlook, November 2017), as first-time buyers will be able to use the stamp duty relief towards a larger deposit.

This is likely to benefit existing homeowners who are likely to benefit from increased prices.

Interestingly, the OBR also indicate that potential first time buyers who are limited by the current loan-to-value lending criteria might also be able to borrow a multiple of their stamp duty saving, which would then mean that they could afford a more expensive property than they would otherwise have been able to.

However, a consequence of this will be that any increased mortgage debt will incur interest over the mortgage lifetime.

The OBR also highlight that the abolition of stamp duty will mean that first-time house transactions will bunch below the £500,000 mark.

Additionally, the OBR state that first-time buyers will also potentially displace potential buyers who will be subject to stamp duty land tax at the normal rate.

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