The stamp duty cut for first-time buyers announced in the Budget is likely to increase the prices paid by these buyers, according to a new report from the Treasury Select Committee.
Purchases worth up to £300,000 no longer incur any stamp duty for first-time buyers, while no tax is paid on the first £300,000 of purchases of up to £500,000.
The report notes research by the Office for Budget Responsibility which found that a permanent reduction in stamp duty would increase affected first-time buyer house prices by double the level of the tax reduction.
It also cites HM Revenue & Customs, which found that the previous stamp duty holiday – which was in effect between 2010 and 2012 – had not increased affordability.
The Chancellor Philip Hammond is criticised in the report for reintroducing a “cliff edge” at the £500,000 price point, arguing this will create distortions to the housing market.
The report urges “a step change to helping first-time buyers purchase a home”.
The committee also calls for the borrowing cap on local authorities to be scrapped. The cap was increased in last year’s Budget, with the aim of helping local authorities to build more homes.
However, the committee argues that while this is a step in the right direction, it does not go far enough.
Treasury Committee chair Nicky Morgan MP says that while the Chancellor pledged to fix the ‘broken housing market’ the truth is that the government will find it very difficult to do so.
She adds: “The borrowing cap restricts the number of homes that local authorities could deliver. To achieve the Government target of 300,000 new homes per year, the cap should be abolished. The potential of local authorities to build should be unleashed.”