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In today’s Budget, chancellor Philip Hammond attempted to make optimistic offers to the younger generation against a background of gloomy statistics, as the UK economy’s GDP growth, productivity and business investment forecasts were all downgraded.
Over the last decade the intergenerational gap has widened drastically, as younger generations juggle paying off student debt, while facing unaffordable housing, high inflation and lower incomes. That’s why many young people voted for Labour in the last election, costing the Tory party a majority win.
This afternoon the chancellor offered some policies aiming to fix Britain’s housing crisis and help young people get a foot on the property ladder – but will his policies solve the issue?
‘From today, for all first-time buyer purchases up to £300,000, I am abolishing stamp duty altogether,’ Hammond said to cheers from the house.
‘To ensure that this relief also helps first time buyers in very high-price areas like London, it will also be available on the first £300,000 of the purchase price of properties up to £500,000.’ This would result in a reduction of £5,000 on a £500,000 property.
He argues that 95 per cent of first-time buyers will benefit from this change, and that 80 per cent of first-time buyers will pay no stamp duty at all.
Shaun Church, director at mortgage broker Private Finance, comments: ‘The government has finally recognised the detrimental effect the current stamp duty system has on the UK housing market. Today’s announcement will be welcomed by aspiring first time buyers across the UK, helping the dream of homeownership become just that little bit more affordable.’
But he cautions that ‘with no mention of reform for those further up the ladder, stamp duty will continue to glue up the market, dis-incentivising homeowners as they instead choose to improve not move.
‘This lack of fluidity can only damage first-time buyers’ prospects in the long term, as a lack of second-steppers or downsizers constrict an already limited property supply, driving house prices upwards.’
This move does not address young people’s ability to save for a deposit in the first place, or the fact that house prices in many regions keep rising out of reach. While the time required to save for a deposit in 1983 was three years on average, it now takes 24 years to save for the average deposit. In London, people spend on average 60 per cent of their income on rent, making it even more difficult to save for a deposit.
Tim Bennett, head of education at Killik & Co, echoes this concern. He says: ‘Eliminating stamp duty on all properties up to £300,000 will only help those buyers who are already making progress on saving a deposit. This is treating the symptom, not the cause.
‘The real challenge is to help buyers save that initial deposit – and we haven’t seen anything so far in this Budget that will directly support young people on overcoming that much bigger financial challenge.’
Maike Currie, investment director for Personal Investing at Fidelity International, says: ‘Whether these headline-grabbing measures will make any difference to first time buyers remains to be seen.
‘The stamp duty cut could perversely inflate property prices and does not address the problem of saving for a deposit – as the chancellor himself acknowledged in his speech, it takes too long to save for a deposit, while house prices remain out of the reach of many.’
She argues that Britain’s housing crisis is fundamentally an issue of supply and demand, and with supply thin on the ground, older homeowners also need the right type of properties to downsize too to ensure larger homes are freed up. She concludes: ‘Short-term quick fixes won’t address these long-term, structural issues.’
The chancellor announced a package which aims to raise housing supply by some 300,000 homes every year. He has pledged £15.3 billion of new financial support for housing over the next five years. Further, he announced planning reforms to make more land available for housing, while protecting the Green Belt.
However, last year, a report by the House of Lords found that the government would need to build one million homes by 2020 to meet the high levels of demand.
Chris Lloyd, associate director at mortgage broker Enness, says: ‘It’s not only about having homes for the growing population, but about keeping house prices in line with wages. This is particularly important in the big cities, where talent should be retained and not encouraged to look elsewhere for more affordable prices.’
In addition, Jeremy Duncombe, director at Legal & General Mortgage Club, argues that a major reason for a shortfall in housing supply is due to the UK’s outdated green belt regulations.
‘There are some areas of the green belt that are ripe for development, without spoiling the countryside. We hope the government will re-consider this issue soon and understand the necessity of modernising legislation to ensure all available land is used as constructively as possible.’
Karen Barrett, CEO and founder of Unbiased, commended Hammond’s clampdown on empty properties. ‘Hammond has wised up to the number of potential homes standing empty. Now second-home owners are to be penalised if they leave them unoccupied, as a council tax premium of 100 per cent will be levied on empty properties.
‘This announcement should be welcomed by renters struggling to find affordable accommodation, and may also bring more properties onto the market as owners choose to sell rather than pay the premium.’
Help to Buy
In a move that helps to mitigate the problem of building a large deposit for a first home, the chancellor also pledged a further £10 billion for the Help to Buy Equity Loan scheme, which helps people buy a home with a 5 per cent deposit.
But Duncombe points out: ‘The lack of clarification in today’s Budget about the future of the Help to Buy scheme will no doubt have left some housebuilders in a state of limbo. Having only been guaranteed until 2021, we urgently need confirmation as to what will happen to the scheme after this date, to enable both developers and lenders to plan for the long term.’
In a move to benefit both older and younger generations, the chancellor announced that he will further reduce income tax by increasing the personal allowance to £11,850 and the higher rate threshold to £46,350.
‘This is much needed given that cash-strapped consumers continue to struggle with high inflation and paltry wage growth,’ says Currie.
However, the changes did not include more innovative solutions like a millennial-specific lower income tax rate or higher pension tax relief rate.
A new railcard for those aged 26-30 has been announced offering card holders up to a third off non-peak fares.
Overall, it seems that while the chancellor’s announcements today bring some welcome news for younger people, they are unlikely to do much to correct the intergenerational imbalance.
Crucially, the Budget did not offer any relief for renters, and the majority of young people are still renting at this stage.
Matt Brown, private client partner at Thomas Miller Investment, says: ‘This Budget was heavily flagged to help young people and one area where young people are undoubtedly worse off than today’s retirees is in their pension prospects. The chancellor missed a great opportunity to address this intergenerational unfairness by not addressing the gross inequality in the tax relief paid to the best off in society against the poorest for whom a decent pension is a distant dream.
‘The chancellor could have levelled the playing field by introducing a much fairer system of the same tax relief for all. This would significantly boost the pensions of the poorest whist still allowing the richest some tax breaks. It is disappointing the Chancellor has not taken this opportunity to address this imbalance.’
This article was originally published in Money Observer on 22 November 2017: http://www.moneyobserver.com/our-analysis/autumn-budget-2017-budget-good-young-people