Stamp duty and Right to Buy changes explained for first-time buyers

Did the Budget have an impact on first time buyers? MoneyMagpie Editor and financial expert Vicky Parry explains what the landscape looks like for those getting onto the property ladder

Chancellor Rachel Reeves’ recent Budget mentioned changes to stamp duty and Capital Gains.

The announcements could have an impact on first-time buyers looking to get on the property ladder next year. However, in some good news, the market could soon be seeing more properties suited to first time buyers – here’s why.

What Rachel Reeves promised in the Budget: Stamp duty

Additional stamp duty for second homes was introduced to begin with immediate effect from the date of the budget. People buying second homes, buy-to-lets, whether as private individuals or commercial companies, will pay 5% stamp duty, up from 3%. This makes it more expensive for each additional property a person purchases, and will put some off purchasing a second home.

However, Capital Gains Tax is frozen on the sale of properties at either 18% or 24% for now, which means no additional taxes for landlords who want to sell up. This could change in the future - but for now, it could mean more properties come on the market for first-time buyers. Stamp duty for first-time buyers was raised to £425,000 in September 2022 as a temporary measure.

This means that properties purchased by first-time buyers will not be subject to stamp duty up to the first £450,000 of the purchase price – which means most FTBs would not have to pay any stamp duty at all. However, the Government did not confirm an extension to this, which means it will end in April 2025 as planned, reducing back to £300,000 relief.

An extra 5,000 homes

Chancellor Rachel Reeves also promised 5000 additional new affordable social homes, with an extra £500m set aside to build them. This will go some way to achieving the Government’s target of 1.5 million new homes over the next 4 years.

However, while we wait for the new longer-term affordable housing strategy in 2025, there is a concern that the Government’s push for more social rental homes being available could impact the market for first-time buyers, especially if the strategy comes at the expense of shared ownership and First Homes schemes.

Changes to Right to Buy

There are more changes afoot for social and affordable housing, which could impact the market for first-time buyers who had planned to buy their local authority home. Most notably, the Government has significantly reduced the maximum discount you can get, from £102,000-£136,000 down to just £16,000 - £38,000. In future, there may also be plans to extend the length of time you must have lived in the property before you qualify for Right to Buy – and it might not apply to new council homes, either.

The Right to Buy Scheme has been changed, so that local authorities can keep 100% of sales receipts. Previously, they could only claim 50% and the Treasury the other 50%. It means that there should be more cash for local authorities selling properties to reinvest the money into new homes.

No word on Rent a Room scheme

One thing many first time buyers are looking at to help supplement their mortgage costs is to take a lodger. Under the Rent a Room Scheme, you can rent out a room in your property for up to £7,500 a year tax-free – which takes a huge chunk out of mortgage costs for many people, making it ideal for FTBs who want to build equity and reduce their mortgage as fast as possible.

There was no mention of this scheme in Reeves’ budget, which is good news in that it means it will continue. However, the rate of £7,500 has been in place since 2015, and with inflation that means it has significantly dropped in real terms of potential income for homeowners. There had been hope this figure would be revised... perhaps the next Budget will reveal more.

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