Will Higher Stamp Duty Thresholds Help First-Time Buyers?

With the changes to Stamp Duty announced in Chancellor Rachel Reeves’s Autumn Budget coming into force on 1 April 2025, many prospective buyers are looking at larger tax bills when buying a property.

This will be the case if you’re looking to buy a second home or are a property investor. But is there one group that might benefit from the changes?

While the changes might not seem appealing on the surface, first-time buyers could benefit.

Despite the threshold on avoiding paying Stamp Duty being reduced from £425,000 to £300,000, the average first-time buyer outside of London is unlikely to be affected.

With those looking to buy a second home or invest in a property portfolio put off by the increase in Stamp Duty thresholds, first-time buyers could have more choice in a market of fewer buyers.

What changes are being made to the Stamp Duty thresholds?

The changes to the Stamp Duty are wide-ranging and can be confusing if you’ve never purchased a house before. Simply put, the thresholds at which you start paying tax are being reduced across the board. This is the case whether you’re a first-time buyer or not.

This might seem like it doesn’t benefit first-time buyers, but the logic is counterintuitive, which we will expand upon later.

Below is a quick summary of the changes in table form, which doesn’t include the relief on Stamp Duty first-time buyers enjoy.

The thresholds up to 31 March are below:

The following is what the thresholds will look like from 1 April:

If you’re a first-time buyer, there are still changes, but they differ from the above, as you receive relief when purchasing your first property.

The threshold until 31 March is shown below:

The relief doesn’t apply to houses valued above £625,000.

From 1 April, the new thresholds are outlined below:

No relief can be claimed on houses valued above £500,000. We’ve compiled a quick bar chart below to help visualise the changes.

How could the changes benefit first-time buyers?

While the changes might not initially appear to benefit first-time buyers, they aren’t as bad as they might seem.

Yes, the threshold for first-time buyers has decreased from £425,000 to £300,000, but it’s unlikely most first-time buyers will purchase a property worth more than £300,000. Statistics from Uswitch show the average first-time buyer house price in December 2023 was £237,655, which represented a decrease of 1.4% from the previous year.

Unless you live in London, where the average mortgage amount for a first-time buyer is £383,386, the decrease in the threshold is unlikely to affect you in most instances. However, with Londoners comprising 181,000 of the 874,000 first-time buyers in England in 2022-23, that still represents 20.7% of the market that could be affected by the changes.

Then there’s the change in the thresholds for moving home and second homes, which could discourage people from purchasing these properties. Home movers will have to pay 2% on any property value between £125,000 and £250,000, rising to 5% on any property valued between £250,001 and £925,000.

For anyone purchasing a second home, such as those looking to buy-to-let, the surcharge on second properties has increased too.

That could mean more properties are available to purchase, giving first-time buyers a wider choice of the market, leading to a softening in prices on properties in the £300,000 to £350,000 range.

It may also lead buyers to look beyond more expensive locations, such as London and the South East, for more affordable options. This could reduce competition for higher-priced homes, giving first-time buyers more negotiating power in less inflated markets.

This represents somewhat of a north-south divide in England, which means first-time buyers in the South are likely to be more affected by these changes than those in the North.

Looking at the statistics from Uswitch, the average mortgage amount in the North West was below £200,000, with the average amount reducing to under £150,000 in the North East. With average amounts below £200,000 in Northern Ireland, Scotland and Wales, it does appear that the average buyer in London and the South East will most likely be dragged into the 5% threshold.

This will add significant cost to first-time buyers in these areas and shows that although the changes won’t affect the average first-time buyer across the country, they will for the average buyer in London and anyone purchasing a property above £300,000.

According to Rightmove, the average property price in the South East is £477,191, while it’s £685,847 in London. So, first-time buyers in these areas are the unlucky ones following the changes.

What will the changes mean for the wider housing market?

Aside from first-time buyers, few areas of the housing market aren’t affected by these changes.

Home movers will now have to pay 2% on properties between £125,000 and £250,000 and 5% on those valued between £250,001 and £925,000. This will increase the cost of purchasing a house and might make many people reconsider moving.

The government might inadvertently slow down the housing market by increasing the tax burden. Although mortgage rates are starting to drop, the change is glacial, and the extra Stamp Duty costs could act as a buffer for many to enter the market.

One area where the market is likely to suffer is the rental sector. With the surcharge on second homes increasing to 5% on top of the standard rate from 1 April, landlords may be less likely to invest in further properties.

This is what the surcharges on second properties will look like from 1 April 2025:

While this might mean first-time buyers can pick up properties that investors have snapped up, it could also lead to landlords waiting to see if the market softens before purchasing again.

One of our expert brokers, Richard Davidson, had this to say on the changes:

With the mad dash to complete before the 1 April deadline, it’s likely the market will slow down initially before buyers and sellers adjust to the changes in the coming months.

The government wants to generate revenue, and with its plans to build 1.5 million new homes by the end of 2029, it hopes market activity will continue, if not increase.

However, the changes to Stamp Duty could have the opposite effect, reducing demand in the overall market, which might inadvertently benefit first-time buyers who can find a property below £300,000.

If this is the case, first-time buyers who can find cheap properties are likely to be one of the few, if only winners from these changes.

Here’s what our Managing Director Pete Mugleston had to say on the changes:

Conclusion

The changes to Stamp Duty are likely to impact the housing market significantly. Whether they benefit first-time buyers remains to be seen, but they could be the big winners if demand for second properties falls away after 1 April.

This is caveated by the fact that demand is likely to be regional. First-time buyers in London and the South East will likely be dragged into the new Stamp Duty thresholds, while the average buyer elsewhere will likely avoid paying any Stamp Duty.

This highlights the imbalance in the UK housing market, with sky-high prices in the South and much cheaper ones in the North on average. With it likely to take longer for those in the South to save up a deposit, will they start to look North to cheaper properties? It’s hard to say, but the first-time buyer market is one to watch for the remainder of the year.