The Chancellor has announced that stamp duty is to be abolished for all first time buyers on properties bought up to £300,000, effective from today. In addition, first time buyers purchasing properties up to £500,000 will pay no stamp duty on the first £300,000.
In his Budget, Philip Hammond announced that 80% of first time buyers would pay no stamp duty at all. With 358,000 first time buyers in the last year, this means that at least 24% of all sales in the UK’s housing market are set to be charged 0% tax. Once other exempt sales under £125,000 are taken into account, this figure will be even higher.
Two thirds of properties bought so far this year across the country have been under the new threshold but there are large regional variations. In Wales and the North East, over 90% of sales in the last year have been over £300,000 while just 17% of sales in London were for less than £300,000.
While good news for first-time buyers, this will further squeeze investors in the sub-£500,000 market who are already suffering from increased taxes. What's more, it does not, give any encouragement to owners higher up the chain to downsize.
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In early October, the Bank of England’s Monetary Policy Committee held its monthly meeting and voted by eight to one to keep interest rates unchanged at 0.5 per cent. Ian McCafferty was the dissenting voice who voted for a quarter-point rate rise for a third month in a row.
Shortly after, the Office for National Statistics (ONS) announced that construction output fell by 4.3 per cent in August – its sharpest drop since late 2012 – while house-building fell by 3 per cent from July. An ONS official said that the weak construction figures for August may have been linked to wet weather during the month.
In the middle of October, the ONS reported that inflation, as measured by the Consumer Prices Index (CPI), fell to minus 0.1 per cent in September. The chief contributors to negative inflation were falling motor fuel prices and a smaller than usual rise in clothing prices. The Retail Prices Index (RPI) measure of inflation fell to 0.8 per cent in September from 1.1 per cent in August.
More recently, ONS statistics showed that the UK’s Gross Domestic Product (GDP) grew by only 0.5 per cent in the third quarter of 2015, compared to 0.7 per cent in the preceding quarter, and lower than analysts’ predictions of 0.6 per cent. This slowdown in the UK economy resulted largely from a fall of 0.3 per cent in the output of the manufacturing sector in the three months to September; the manufacturing sector has now experienced a decline for three consecutive quarters. Another contributing factor was the biggest downturn in construction output in three years, a drop of 2.2 per cent; nevertheless, the services sector grew by 0.7 per cent.
The maintenance of inflation well below the Bank of England’s target of 2 per cent, coupled with the slowing down of growth in the economy, may suggest that a hike in UK interest rates in the near future is retreating. According to a recent poll of economists by the news agency Reuters, their average forecast of when the Bank of England will start to raise interest rates has been pushed back to the second quarter of 2016 from the first quarter. Meanwhile, the October monthly meeting of the US Federal Reserve has also voted to keep its interest rates unchanged.
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