Stamp duty ‘not necessarily the biggest barrier’ to buying a home

Stamp duty is “not necessarily” the biggest barrier to buying a home for some people and the benefits to buyers from scrapping it could be cancelled out by house prices being pumped up, some commentators have said.

Conservative party leader Kemi Badenoch announced that if in power, the Conservatives would ban stamp duty on people’s primary homes.

Mrs Badenoch said at the party’s conference: “Stamp duty is a bad tax.”

She added: “We must free up our housing market, because a society where no one can afford to buy or move is a society where social mobility is dead.”

Stamp duty applies in England and Northern Ireland, with separate property taxes in Scotland and Wales.

The tax is a “slab” tax, with a “nil rate” band applying on the first £125,000 and different rates applying on other portions of the property price.

First-time buyers have a higher “nil rate” band of £300,000.

Sarah Coles, head of personal finance, Hargreaves Lansdown said: “Having a tax bill when you buy a home doesn’t make the process any easier, but it’s not necessarily the biggest barrier someone faces when they buy and sell.

“Take someone downsizing, for instance, from a £750,000 property to a £300,000 one. In England and Northern Ireland, they’d pay £5,000 in stamp duty.

“It’s a fraction of what they’re likely to pay in estate agency fees, and sits along a huge range of costs from conveyancing to removals. It begs the question of whether removing the cost of the tax is a game changer.

“Meanwhile, a first-time buyer pays no stamp duty at all on a first property costing £300,000.

“For them, the enormous challenge is raising a deposit, and one of the most valuable tools at their disposal is the Lifetime Isa, offering a 25% Government bonus on all contributions.

“It’s also vital to consider the potential impact on the Treasury, where else this money might come from and what other taxes might rise.

“It’s an interesting addition to the debate, but it’s only a suggestion from an opposition party, and with just under four years to an election, it’s highly likely that things will change between now and then.”

Stuart Cheetham, chief executive of mortgage lender MPowered, said: “Scrapping stamp duty entirely would be very popular, and it would deliver a huge caffeine jolt to the sluggish property market.

“But there’s also a risk that it would drive up prices so fast that any savings for first-time buyers would soon be cancelled out.”

Lucian Cook, head of residential research at Savills, said that if scrapping stamp duty was a “simple tax giveaway, the likelihood is that the current stamp duty bill simply passes through into prices”.

He said: “It is difficult to model what it would do to transactions, but it should free up transactions, especially among the groups that bear the biggest exposure to taxes.

“With the reliefs already available, it would have the least impact on first-time buyer numbers, with much bigger impacts on mortgaged home buyers and downsizers.”