However, new research from Oxford Economics, an advisory firm, suggested that the stamp duty cut – which constitutes a £600m per year tax cut – is an “illusion” which will see house prices rise while having a minimal effect on resuscitating UK home ownership.
The research employed Oxford Economics’ model of house prices and home ownership rates to simulate the likely impact of the measure.
It found that, due to the economic incidence of stamp duty falling primarily on the seller, much of the cut (and the discounted value of lower taxes on future transactions) will be capitalised into the value of the housing stock, pushing average prices up.
The simulation predicted that that average UK house prices will rise by 0.4% – this is equivalent to an approximate addition of £900 to the average UK house price of £226,000.
Indeed, as the budget was announced, the Office for Budget Responsibility (OBR) said that the policy was likely to inflate property prices and benefit mainly those who already have their own homes.
Dream or illusion?
And although the tax cut improves FTBs’ purchasing power relative to other buyers, the resulting price increase will also have dampening effects on home ownership. With the net effect estimated by Oxford Economics being a 20-25,000 rise in home ownership – or a 0.1% increase compared to the baseline forecast.
“At around £600m per year, it appears to be rather an expensive way to raise home ownership,” commented Ian Mulheirn, director of consulting at Oxford Economics.
Moreover, despite the report suggesting that the “rapid” fall in home ownership has run its course, and is expected to see a slight uptick from 63.2% to 63.4% over the next five years – Oxford Economics said that “the cut to FTBs’ stamp duty will do little to reverse the big drop in home ownership seen over the past 15 years.”
Mulheirn also stressed that stamp duty isn’t the only jigsaw in the home ownership puzzle, saying that the lack of high-LTV mortgage lending since 2008 has left “buyers with large amounts of equity with a big advantage over FTBs in the housing market.”
“Things that reduce that advantage are likely to raise the home ownership rate,” he continued.
“However, with high-LTV mortgages now more tightly regulated than before the crisis, it’s hard to see home ownership rates regaining anything like their peak of the early 2000s,” Mulheirn added.
The stamp duty cut introduced in the Autumn Budget applies to all FTBs purchasing properties between £125,000 and £500,000 offering relief worth up to £5,000, with those purchasing houses worth up to £300,000 seeing their stamp duty liability reduced to zero.