Surprise stamp duty cut is worth a punt

Here’s why the government may reward first-time buyers with a stamp duty cut in the Budget.

I have no inside information on this, it’s just speculation, but I wouldn’t be surprised if Philip Hammond lowers the rate of stamp duty for first-time buyers and maybe even the whole market.

Stamp duty is the government’s chance, in addition to optimising the tax take, to achieve three objectives in relation to housing and its electorate.

  1. Support prices in London and the South East to avoid a house price downturn that disillusions its habitual voters.
  2. Nuture the boom taking hold in the rest of England, with an eye on pleasing Labour voters and those who ‘voted Brexit because they felt left behind’.
  3. In playing that boom, make sure to avoid the mistakes of London where price rises locked out first-time buyers to the benefit of investors.

First-time buyers have been on the wane in London, storing up electoral danger for the Tories because angry middle-class renters are allying politically with the perenially priced out to push for rental reform.

My bet is that in the long-term rental reform looks very likely to happen, but that doesn’t mean the Tories won’t adopt short-term tactics designed to split that coalition.

The other benefit of coaxing first-time buyers back into the London market is it makes it easier for homeowners further up the ladder, who are grumbling about the cost of moving, to sell.

11 Downing Street, the Chancellor’s house (image notes below)

If Hammond is particularly decisive he may cut stamp duty by the same amount (1%? 2%? 3%? who knows?) at every band.

He’d have the headline of helping out Theresa May’s ‘just about managing’ people in the lower price brackets, which would buy cover for doing a favour to the London property industry, which has been baying for cuts for ages.

What Hammond won’t do is axe the additional stamp duty that was brought in for second home buyers and investors in April last year.

Firstly, because it’s politically unacceptable. Secondly, because if the weak pound forces Britain to sell its housing market to the world he’ll reason he might as well get some extra tax for doing so. Thirdly, because the Tories know why the housing market is ‘broken’ and they know that the additional stamp duty and other restraints on buy-to-let mania are needed to fix it.

If he does cut it, renters should be storming the Downing Street barricades.

Image by DS Pugh, used under Creative Commons licence