Full Fact has received questions from a number of readers about a tweet shared by the Treasury promoting its recent policy announcements in the mini-Budget.
The tweet, posted on 29 September, says: “Thanks to the Growth Plan, a typical first-time buyer in London moving into a representative terraced house will save £11,250 on stamp duty & £1,050 on the household's energy bills—and if they earn £30,000 almost an additional £400 on tax. This is around £12,700 in total.”
The figures themselves are accurate, but would appear to be based on a very specific set of assumptions about the profile of the hypothetical “first-time buyer”, who appears not to be “typical” in a variety of important ways.
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Stamp duty savings
The Treasury’s stamp duty saving figure refers to “a typical first-time buyer in London moving into a representative terraced house”.
The Treasury told Full Fact this was based on the average price of any home in London (for first-time buyers and home movers) of £543,500, per Land Registry data from July 2022.
Under previous stamp duty rates, a first-time buyer purchasing a property in London with a value of £543,500 would have paid £17,175 in stamp duty.
Following the changes announced last week, the same purchase would now be subject to £5,925 in stamp duty charges—an £11,250 saving.
(In practice an average “terraced house” in London appears to sell for a bit more than this, but the stamp duty saving works out to be the same).
That said, a “typical first time buyer” in London doesn’t buy a £540,000 home.
According to UK House Price Index figures, the average amount a first-time buyer in London spent on a property in June 2022 was £464,767.
Based on this figure, an average first-time buyer would save not £11,250 on stamp duty as a result of the government’s changes, but rather £6,250.
Could someone earning £30,000 afford this?
The Treasury tweet also says that if this hypothetical first-time buyer earns a salary of £30,000 per year, they would save £400 on tax (which presumably refers to National Insurance and income taxes).
This is accurate, as we’ll explain later. However, it raises the question as to whether someone earning this salary could afford to buy a house worth £543,500.
Credit reference agency Experian says that lenders typically offer borrowers between four and five times their salary as a mortgage, meaning someone on £30,000 could expect to borrow up to around £150,000. This suggests that someone earning £30,000 would need to either have a very large deposit, get a much higher loan than is normal or be buying as part of a group or couple in order to afford to buy a £543,500 house—or have some other form of help..
Tax and energy savings
The remainder of the £12,700 savings figure mentioned in the tweet is accounted for by savings in energy bills and tax resulting from the government’s plans announced on 23 September, and the Energy Price Guarantee, announced on 8 September.
According to the government’s own figures on the impact of its energy support package, someone living in an end-of-terrace house could expect to save £1,050 on their annual energy bills from October 2022 compared with what they would have paid under the previously announced price cap.
This is also the expected average saving for homes overall. For someone living in a middle-terraced house the expected saving is slightly lower, at £950.
These figures refer to expected savings across Great Britain, where the policy will be in action, rather than in London specifically.
As we’ve previously explained, these figures are calculated based on median household energy consumption.
The remaining £400 appears to be roughly based on the amount someone earning £30,000 a year can expect to save following changes to National Insurance and income tax rates.
Under previous tax rates, an employee in London earning £30,000 would pay approximately £5,795 in income tax and National Insurance contributions, at 20% and 13.25% respectively.
Following the mini-Budget, the basic rate of income tax and the relevant rate of National Insurance contributions have been reduced to 19% and 12% respectively, meaning someone earning £30,000 will now pay £5,403—a £392 saving.
Image courtesy of Martin Sepion