Small comfort for first-time buyers

The Government announced a new initiative today to help first-time buyers, but it is likely to fall well short of what was hoped for.

Delivering his Pre-Budget Report, Chancellor Gordon Brown announced plans to create mixed communities in deprived areas to "provide further support for first-time buyers".

However, the hopes had been that he would announce changes to stamp duty.

Stamp duty land tax is applied to properties worth more than £60,000. The lower limit to the tax has not changed since Labour came to power, while house prices have increased from an average of £76,103 in 1997 to £153,439 in November 2004, according to Nationwide.

Additionally, the tax triples on houses worth more than £250,000 and increases again on properties worth more than £500,000.

The tax is widely seen as a stumbling block for first-time buyers.

In the run-up to the Pre-Budget Report banks, building societies, and political parties all called for reforms to the tax.

It was not mentioned by Mr Brown.

However, he did comment on the wider housing market.

"The expected moderation in house price inflation [is] now underway," he commented.

"Since 1997 Britain has 1.2 million additional homeowners," he stated, adding: "Since 1997 mortgage rates have been lower than in any seven-year period since the late 1960s. Interest rates have been lower than in any seven-year period since the early 1960s."

The lack of a mention of stamp duty in the Pre-Budget Report does not mean that changes will not be announced in the full Budget in spring, but the signs do not look good for those hoping for reform of the tax.

David Bitner, head of product operations for Bradford & Bingley, commented: "The Chancellor has missed a crucial opportunity here to help beleaguered first time buyers by not updating the stamp duty bands to reflect current market conditions.

"It was never designed to be a tax on first time buyers, yet it now affects a vast proportion of them and is seriously hampering their ability to get a foothold on the property ladder. The average first time buyer now has to find over £900 to pay this tax, at a time when most are struggling to even fund a deposit.

"With the number of first time buyers entering the market at an historical low, hovering around the 30 per cent mark for most of 2004, compared to 42 per cent in 2001, this is likely to have serious implications for the market as a whole."