The Chancellor Philip Hammond announced in today’s Budget that he is abolishing stamp duty for first-time buyers on homes under £300,000.

But don’t put down your avocados yet, millennials. We’re not convinced this is quite the windfall it appears to be.

The background

If you are buying a property or plot of land for more than £125,000 in England, Wales and Northern Ireland, you have to pay stamp duty.

The amount of duty you pay increases with the value of the property.

Today’s announcement does two things. It abolishes stamp duty on properties under £300,000 for first-time buyers. It also reduces the rate of stamp duty on homes between £300,000 and £500,000 to just 5 per cent.

First-time buyers in London and the South East will benefit the most

In the first half of this year, there were 160,000 first-time buyers across the UK, paying £210,000 on average. (We’ve used data from the Halifax and the Council of Mortgage Lenders).

That means the average first-time buyer will save about £1,700 from this announcement.

But the benefits are most strongly felt in London and the South East, where house prices are considerably higher than the rest of the UK (just over £400,000 in London, and nearly £280,000 in the rest of the South East).

That means first-time buyers in London are expected to save £5,000 from this policy.

By contrast, the average house price for a first-time buyer in Yorkshire is just under £140,000. Abolishing stamp duty for these transactions means a saving of only around £100.

Will the policy actually help people saving for their first home?

Philip Hammond was keen to stress that this policy is designed to help people saving for their first home.

But the actual savings are very small in comparison to amount of money required to secure a deposit on a house. For example, a first-time buyer in London will spend £106,000 on their deposit, of which today’s announcement only saves them £5,000. In Yorkshire – where first-time buyers will save just £100 on stamp duty – average deposits are just under £20,000.

So the question is: how many people will actually be able to bring forward their decision to buy a home as a result of today’s announcement? The Office for Budget Responsibility says the answer is only 3,500.

Of course, there’ll be many more first-time buyers with more money in their pockets as a result of the change. But the vast majority of those people would have been able to buy their first home without the stamp duty abolition.

And because more home buyers will have more cash to spend, the OBR predicts that today’s announcement will actually push up house prices overall for people by about 0.3 per cent. That mainly benefits people who already own property.

It’s worth saying that this will cost the taxpayer about £560 million next year, £585 million the year after, and as much as £670 million in 2022.

So official statistics suggest that the effects of today’s announcement will be:

  • 3,500 extra people will be able to buy their first homes.
  • Something like 160,000 people will get a small windfall when buying their first house – although that windfall won’t have made any difference to their ability to buy the house. They could already afford it.
  • House prices are expected to go up by about 0.3 per cent, mainly benefitting people who already own property.
  • All this will cost the taxpayer more than £500 million a year for the next five years.