Stamp duty holiday could leave FTBs ‘worse off’

Labour’s proposed stamp duty holiday will “distort the market” and could make first-time buyers worse off, says macro-economic research firm Capital Economics.

This morning, Labour said first-time buyers would be exempt from stamp duty on homes bought for less than £300,000 if it is in power after the general election.

Labour last introduced a stamp duty holiday for homes worth less than £250,000 between March 2010 and March 2012. A study by HMRC found it had little effect on demand for property. Between September 2008 and December 2009, the value of a home on which no stamp duty was paid increased from £125,000 to £175,000.

But Capital Economics says the last stamp duty holiday caused a spike in sales just before the end of the holiday, which was then followed by a slump. It says it expects the same again if the plan is introduced.

Further, the firm says the cut could also lead to higher house prices, although it admits the increase could be “fairly limited”. According to Halifax, prices rose by an average of 0.6 per cent month-on-month in the six months leading up to the end of the previous two stamp duty holidays, but fell by an average of 0.3 per cent month-on-month in the six months following the cuts.

CE’s property economist, Matthew Pointon, says: “So not only does a stamp duty holiday not help first-time buyers, it could make them worse off. The beneficiaries will instead be those who can sell their home to first-time buyers at temporarily inflated prices.

“Labour have criticised the coalition for housing policies that boost demand while doing nothing to increase supply. This proposal leaves such criticisms on very shaky ground.”