First-time buyers in London are paying an average of 750% more stamp duty than those purchasing a property in other parts of the country, new figures show.
According to estate agent haart, with the average house price currently £548,688 in the capital, this would cost an aspiring first-time buyer £17,433 in stamp duty.
This compares to a stamp duty charge of just £2,051 outside the capital, where the average price of a property is £227,566.
Spiralling house prices in London mean the government’s stamp duty reforms over the last two years have done little to help the capital’s first-time buyers.
Paul Smith, chief executive of haart, said stamp duty was “making it all but impossible for first time buyers to own a home of their own”
“It is wrong to penalise Londoners just because prices in the capital are so high, and we need a more balanced approach to stamp duty for first time buyers. London’s Generation Rent will find it almost impossible to save for a deposit while paying record rents, and although Help to Buy has been a great government initiative, it still requires first-time buyers to pay up to £20,000 in stamp duty and £30,000 for a deposit.
“We cannot have a system where first-time buyers must save for decades before they can expect to own a property in the place where they live and work.”
Stamp duty is a progressive tax that you start paying on properties worth more than £125,000. As the price of the property increases, so does the rate of stamp duty.
In December 2014 the government scrapped the old slab structure and introduced a new banding system to help benefit anyone purchasing a home priced under £937,500. Those buying a home above this amount now face a bigger tax bill.
You now pay 0% up to £125,000; 2% to £250,000; 5% to £925,000; 10% to £1.5million and 12% above that.
Smith warned that unless the government acts now London could see a major brain drain to the Northern Powerhouse, Midlands Engine or to the EU, where property is more affordable.
First-time buyers in London are at a significant financial disadvantage to the rest of the UK due to high rents and deposits.
The average London salary is 24% higher than the rest of the UK at £34,900. However the average rent in the capital is 41% higher than the rest of the country at £1,961, making it more difficult to save for a deposit.
The average property in the capital is also priced 141% higher than the UK average. Even with a 95% mortgage on a property valued at the average price of £548,688, buyers in London would require a deposit of £27,433, compared to just £13,878 for a person buying an average value property in the rest of the UK.
London first-time buyers must therefore save a total of at least £44,866 for stamp duty and a deposit, which is 182% higher than the total for the UK average.
Smith said: “A stamp duty holiday for first-time buyers would be a quick and easy way to get the market moving and address the current unfairness in the system. We need Theresa May to show a Thatcherite commitment to home ownership and bring about a first-time buyer revolution – one that will offer young people a secure future and provide a welcome boost for the whole economy.
“There is also much more that could be done to get people onto the ladder, including underwriting lenders so that they can relax some of the criteria which prevents first-time buyers from getting a mortgage, as well as further planning reform, tax incentives to encourage quicker housebuilding, and investment in the infrastructure projects that will unlock new garden cities.”
