Surge in first-time buyers ‘unlikely’

Tax change is unlikely to attract many new buyers warn experts. Picture: Scott Louden
Tax change is unlikely to attract many new buyers warn experts. Picture: Scott Louden
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Experts play down growth hopes from John Swinney’s new property tax, writes Jeff Salway

A surge in first-time buyer numbers in Scotland is unlikely next year despite government proposals for new property tax rates that reduce the cost of buying lower-value homes.

Experts are playing down expectations of a boost for first-time buyers after the Scottish Government set out plans to replace stamp duty with a new land and buildings transaction tax (LBTT).

Under the revised system, outlined on Thursday by finance secretary John Swinney but which received Royal Assent over a year ago, there will be no tax on property transactions below £135,000.

A marginal 2 per cent tax will then be charged on residential transactions between £135,000 and £250,000, with a 10 per cent rate on the value over £250,000 and a new rate of 12 per cent on any amount above £1 million.

The winners from the overhaul will be those buying homes worth less than around £325,000. The Scottish Government estimates that, when the change comes into force, some 5,000 transactions previously liable to stamp duty will be tax-free, with another 44,000 buyers paying a reduced level of tax.

But while the move is aimed at encouraging first-time buyers, the savings may be too marginal to make any real difference, said Dr John Boyle, head of research at Rettie & Co.

“It may help some to get to the cash needed to get on the ladder, but, for many, the saving will only be hundreds of pounds, not thousands,” he said. “Access to mortgage finance remains the biggest hurdle – few people have been complaining that stamp duty has been the main problem in the housing market.”

Someone buying at £150,000 will be better off by £1,200 under the LBTT, but they’ll still need to stump up a deposit plus costs including legal fees.

Robin Purdie, director of Mov8 Financial in Edinburgh, said: “I can’t see it making that much of a difference at the lower end of the market, in real terms. As much as any saving is a good thing, £1,200 is not really going to be the difference between someone being able to purchase a property or not.”

On the plus side, he added, it may encourage more people to look into buying and potentially discover more options open to them than they had realised.

“So, it could help some people to get on to the ladder, but some second and third-stepper families could be hit hard further up the rungs,” said Purdie.

The increased tax on transactions in the middle and higher end of the market has prompted fears of a housing market blockage in Aberdeen and Edinburgh. Boyle pointed out that someone buying a four-bed Cala home in Edinburgh’s Fairmilehead at £500,000 will need to pay more than £7,000 extra under the LBTT.

“You are now looking at a bill of £27,300 to stump up for that as well as a deposit and other transaction costs. I can see some families scaling back their ambitions, or maybe saving a bit more before they can buy,” he said.

The average family home in the capital is currently worth around £363,000, according to Savills. A purchase at that value would attract cost £13,600 more in tax under the new system, up 25 per cent from the amount paid in stamp duty.

Buyers of properties of £450,000, will now pay 65 per cent more at £22,300, it calculated.

Andrew Perratt, Savills head of residential in Scotland said: “We welcome a progressive new system and the fact that the majority of homeowners will be better off. However, for some sections of the market the new rates are not good news, and it comes at a time when the prime Scottish market is only just beginning to recover.”

A flurry of activity is expected over the coming months as buyers likely to be adversely affected seek to avoid the charge before it takes effect in April.

“For young families who need to live in the prime hubs of Edinburgh, Aberdeenshire and Glasgow’s west end, where average house prices are considerably higher, the proposed increases are so punitive they may discourage many from moving,” said Perratt.

“In view of this we anticipate increased market activity between now and the spring, whereby buyers are likely to make quick and committed decisions before the new tax comes into force in April.”