Competing with investors
Before Mr Sunak temporarily changed the rules, first-time buyers purchasing homes worth £500,000 or less already had a full exemption on the value up to £300,000. If a first-time buyer purchased a home that cost more than £500,000, they lost the exemption and their nil-rate band fell back to the standard £125,000.
Mr Cullivan and his girlfriend have a budget of £450,000 to £500,000 to buy a house. The new stamp duty rules mean that as first-time buyers, if they spend a bit more, they will save a lot more in tax.
If they buy a property for £500,001 during the stamp duty holiday, they would not have been eligible for the first-time buyer exemption anyway and will technically be receiving the full stamp duty saving of £15,000. If they purchase at £500,000, a price point at which he would have received the previous exemption, they will only save £10,000.
But in both situations, he would be competing with investors who would be saving £15,000 – as Mr Sunak’s holiday applies to all buyers including those purchasing additional properties.
Those purchasing additional properties still pay a blanket surcharge of 3 percentage points in stamp duty across the entire value of the property, but their savings are bigger than those of first-time buyers.
London’s first-time buyers lose out most
The biggest disparities in stamp duty savings between investors and first-time buyers are concentrated in the lower priced-parts of the capital, which are also the traditional heartlands for entry-level purchasers.
In London’s outer boroughs, the difference is stark. A buy-to-let investor purchasing an average priced home in Barking and Dagenham would save nearly four times the amount in stamp duty than a first-time buyer – a total of £4,130.
Similarly, in Bexley and Havering, investors now save double what first-time buyers stand to gain – meaning they can pocket an extra respective £3,733 and £3,692.
Wales is a mirror image of England
Across the border in Wales, however, the Government’s equivalent transaction tax holiday, which raised the nil-rate band from £180,000 to £250,000, excludes those purchasing additional homes.
This means that first-time buyers have an extra edge over local investors – and the advantages are most significant in the markets that are least affordable.
In Monmouthshire, where the average house price is £240,846, the highest of any local authority in Wales, first-time buyers now pay £1,274 less than investors in tax.
What will happen to house prices?
The markets where it’s possible to make the biggest overall stamp duty savings are already getting more heated as buyers move to take advantage of the temporary tax break.
Sellers are getting bullish – asking prices in July hit a new record high, according to property website Rightmove.
Analysts warn that the boom can’t last. A surge in transactions before the holiday deadline will likely be followed by a plunge. Meanwhile, unemployment will rise as the furlough scheme ends in the autumn, and some analysts expect a spike in forced sellers when lenders end the mortgage holidays that have so far supported 1.9 million homeowners.
The Centre for Economics and Business Research has forecast a 10.6pc house price fall in 2021.
There is a risk that first-time buyers who purchase now could buy at an artificially inflated price and then fall quickly into negative equity when the stamp duty holiday ends and buyer demand slumps.