The real reason that the budget is great news for first-time buyers

The Budget contained some great news for struggling first-time buyers. I don't mean the latest shared ownership scheme, which they should simply ignore. I'm talking about a tax change that could transform the private rental sector.

George Osborne announced a new scheme to help out buyers having trouble getting their hands on deposits and hence houses. Under the Firstbuy direct scheme you have to save up a 5% deposit. Then the government and a housebuilder will both put up another 10% for you, via an equity loan on a very low interest rate. That gives you a total of 25% enough to make sure you can get a well-priced mortgage. According to various employees of estate agency Kinleigh, Folkard & Hayward this is "great news" for property companies and "great news" for first time buyers.

I'll go with the first any buyer is a good buyer for a house builder these days. But the second? No. House prices are too high and they will come down in real terms at the very, very least. So it doesn't make any sense for the young to buy them now. They are much better off saving and waiting regardless of the various bribes chucked out by interested parties.

So why should the budget be making them happy? Because it has at a stroke made investing in what they really need good quality rental portfolios a much more attractive thing for big investors to do. Until now, if investors have bought groups of flats, they had to pay stamp duty as one tax on the lot. So if they bought five £200,000 flats together they had to pay 5% of the purchase price away £50,000. That was pretty off putting.

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Now they won't have to do that any more. Instead they will pay stamp duty based on the median value of the properties in the portfolio, so 1% (the rate on properties that cost below £250,000) or £10,000. That makes a big difference to them because it makes investing more likely to give them the yields they need, and to non-home owners because it means they will end up with more choice in the rental market.

Right now the rental sector in the UK is dominated by buy-to-let investors. This isn't good enough. Some buy-to-let landlords are great. Some are awful. But most suffer from lack of scale one way or another (they don't have full-time handymen at their beck and call) and from cash-flow problems: when the purchase of a new boiler requires several months' worth of rent to be set aside and there is a mortgage to be paid, not very many tenants get new boilers. That's why 40% of the privately rented property in the UK is considered substandard.

However that aside, the buy-to-let sector just can't provide for the fast-rising number of people needing quality rental property in the UK; they aren't big enough and they can't get the finance to ever be big enough. For that we need institutional investors. Cutting their stamp duty bills is a good way to start luring them in.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.