Autumn budget: the ultimate test for the government's housing plans

Stamp duty has become increasingly prevalent in the media, with the spotlight being placed on the Government to see how they will solve the first housing crisis of the 21st century. With some young people not being able to get on the housing ladder and an array of hidden costs behind each transaction, the British housing market is at risk of stalling. Stamp duty is one of the contributing factors to this and is one of the aspects that the government can change at the Autumn Budget. A series of challenges have been presented but this is primarily affecting the housing market in the UK. The effects ripple throughout the entire market, impacting all consumers, from first time buyers to those who are retired and looking to downsize.

There are young people who are eager to get onto the property ladder, but the majority can’t. Extortionate rates pressed by landlords are adding to their burdens. Younger generations are already struggling to build a deposit whilst the costly impact of stamp duty is delaying them getting on the first rung by several years. Along with saving for a deposit, there are also many other hidden costs which people don’t factor in for. The Institute for Fiscal Studies (IFS) said that their recent research revealed that about 40% of young adults cannot afford to buy one of the cheapest homes in their area, even with a 10% deposit.  The IFS said house prices in England have risen by 173% over two decades but average pay for 25-34 year-olds has grown by just 19% over the same period. Meanwhile, there is a supply issue as the widening demand accounts for why prices are rising.

This was partly addressed by the government during the Autumn Budget 2017 when they scrapped stamp duty for first time buyers up to the value of £300,000, but this still hasn’t had the desired effect on boosting the market. Property is not being built quickly enough to cater to demand whilst costs continue to escalate. In the meantime, Labour have come up with more radical ideas that include plans to build a million affordable homes, impose rent controls, give tenant more rights, and scrap stamp duty. Many of the proposals are targeting the younger sector and suggest moving people out of rented accommodation into affordable housing.

There is a rising debate about Stamp Duty Land Tax reform ahead of the Chancellor’s Autumn Budget at the end of the month for which there are two connected arguments.

As CEO and Founder of the fair loan comparison site, FairMoney I ask: Do we introduce methods to fix the dormant housing market through stamp duty changes or build more homes? And who do we help first; first-time buyers or older downsizers? Either scrap stamp duty and take the income hit or use the income generated to build more houses. However, with less income produced, there will be less funding to cater for the social demand and pressures to build affordable housing. If taxes were reduced, this may manipulate or to help kick-start the housing market. On the other hand, the government could scrap the taxes altogether and hope that the market fixes itself. By helping first time buyers become home owners by building affordable accommodation, there will be less money to incentivise older people to move out of former family homes to make those properties available for the next generation of families. Tax incentives would encourage downsizing by benefitting those with larger homes to move into smaller properties, which in turn, would result in thousands of young people and families owning their own homes.

This month, the Royal Institution of Chartered Surveyors (RICS) called for a stamp duty cut to “rebalance the UK housing market and reignite activity across all tenures”. They argued that tax incentives would encourage downsizing by incentivising those with larger homes to move into smaller properties, which in turn, would result in thousands more young people owning their own home. What the Autumn Budget will reveal is what the proposals are in detail, who they will help, and will they make the housing sector fairer? The Government is under a huge amount of pressure to fix the housing market, and this Budget may be the most important for Theresa May and her cabinet on this issue.

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