First-time buyers ‘have just days’ to agree purchases or risk £7,500 Stamp Duty hit ahead of big rule change
THOUSANDS of first-time buyers have just days left to get their purchase agreed or face being slapped with a £7,500 stamp duty bill.
Currently, first-time buyers do not have to pay stamp duty on the first £450,000 of a property purchase.
But from April the threshold beyond which they must pay the tax will plummet to £300,000.
Meanwhile, home movers currently only pay land tax on purchases worth £250,000 or more.
This threshold will be slashed to £125,000 for owners who want to move up the ladder.
The changes are forecast to drag approximately 310,000 more homebuyers in England into paying stamp duty each year, according to Estate Agent Hamptons.
It could add thousands of pounds to the total cost of buying a home.
For instance, a first-time buyer who purchases a property worth £450,000 today does not need to pay any stamp duty.
But their property tax bill could rise to £7,500 from April.
If the same buyer was to purchase a home worth £325,000 then they would need to hand over £1,250 in stamp duty.
As a result, many first-time buyers are “making a dash for the finish line” said Aneisha Beveridge, head of research at Hamptons.
She said: “We have seen a particular uptick in purchases over £425,000, where new buyers face the biggest tax bill hikes.
“With completion times averaging around four months, many of those agreeing sales now find themselves cutting it fine.
The next few weeks will be crucial for those hoping to avoid higher stamp duty bills.”
Buyers who want to complete their purchase before the deadline need to act fast as time is running out.
It takes an average of 126 days between a sale being agreed and completion.
How much extra would I need to pay?
First-time buyers currently do not pay stamp duty on the first £425,000 of their property's value.
Beyond that stamp duty is charged at 5% on the portion from £425,001 to £625,000.
But from April 1 the threshold at which you pay stamp duty will be cut to £300,000.
Beyond that you will pay 5% stamp duty on the portion from £300,001 to £500,000.
If the price is over £500,000, you canot claim the relief.
A first-time buyer who is buying a home worth £325,000 would pay £1,250 in stamp duty from April 1.
If the same homeowner instead purchases a property worth £350,000 then their bill would rise to £2,500.
Those with a bigger budget who want to buy a house worth £400,000 would need to hand over £5,000 in stamp duty after March 31.
Or if their dream home is worth £450,000 then their bill would rise to an eye-watering £7,500.
All of these buyers would pay no stamp duty if they complete their sale before March 31.
Only around 29% of sales agreed complete within three months.
But that figure falls to 13% within two months and just 6% in one month.
Andrew Montlake, managing director at mortgage broker Coreco, warns that first-time buyers need to act now if they want to meet the deadline.
He said: “In reality, it really is the last couple of weeks to get a purchase agreed if you want to be in with a chance of making the deadline.”
Some homeowners have already sprung into action.
The proportion of homes which were bought by first-time buyers across Great Britain hit a record high in the last two months of the year.
First-time buyers purchased 31.8% of homes in the country in November and December, the highest figure on record.
Yorkshire and the Humber saw the biggest rise in the proportion of homes bought by a first-time buyer.
Over the course of last year around 28% of homes were purchased by a first-time homeowner.
But this number soared to 32% in November and December.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
Meanwhile, in London nearly half of homes sold in the last two months of the year were purchased by first-time buyers – the highest share in the country.
Around 69% of these buyers bought a home which cost more than £300,000.
This means they are set to save money if they can complete their purchase by the deadline.
Buyers in London and the South East will be some of the worst affected by the stamp duty changes as property prices are much higher in these regions.
A typical home in the UK cost £268,518, according to Nationwide Building Society.
But an average home in the Capital would set you back £525,535 – nearly double the national average.
Meanwhile, a similar property in the South East would set you back £336,224 – £67,706 more than the national average.
How to complete your purchase before the deadline
David Hollingworth, associate director of mortgage broker London & Country, said keeping on top of things that you can control can help you to get your purchase over the line.
He said: “Being super prompt with any document requests from your lender and solicitor will help ensure that you aren’t building in any avoidable delay.
“That will help if you need to put some pressure on your buyer to speed the process up but of course, a lot will depend on the length of the chain as to what can be achieved.”
Do not wait for updates from your mortgage broker and estate agent.
Instead, check in with them every couple of days and ask for regular updates on any paperwork you need to complete.
Different parts of the buying process can vary in how long they may take, property portal Zoopla warns.
Examples of this could include:
- Securing a mortgage – two to four weeks
- Making an offer – one week
- Instructing a conveyancer – six weeks to three months
- Getting a survey done – one week
- Exchanging contracts and completing the purchase – one day to two weeks
You should set a target for exchanging contracts so that everyone in the process has the same deadline to work towards.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa – It’s a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there’s a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.
Help to Buy equity loan – The Government will lend you up to 20% of the home’s value – or 40% in London – after you’ve put down a 5% deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.
Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you’re restricted to specific ones.
Mortgage guarantee scheme – The scheme opens to new 95% mortgages from April 19 2021. Applicants can buy their first home with a 5% deposit, it’s eligible for homes up to £600,000.
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