Chancellor Phillip Hammond announced in the budget last week that stamp duty will be removed with immediate effect for first-time buyers. Previously, stamp duty was paid on all residential properties above the price of £125,000. This clearly sounds a positive step in the right direction that could enable the younger generations to get their foot on the property ladder, who have struggled up until now to afford their own home.
Bank of mum and dad?
In the ten years up to 2015, this had increased by a staggering 700,000 who now live with their parents. These days, many parents are also helping their children to get the money together for a mortgage. Apparently, in 2016 according to a Legal & General report, parents financed over a quarter of all UK mortgage agreements!
Though if we take into consideration the views of the estate agent Strutt & Parker, perhaps all young people need to do to get on the property ladder in under five years is to just start making their sandwiches for work more often, stop playing the Lottery, and go out less. On the latter, first-time buyers could save over £6,000 a year alone by giving up just one night out a week. According to the estate agents that is. Slightly dubious calculations some might say…
Guarantor loans also play a part here. For those with adverse credit or looking for strong loans-to-value, first-time borrowers or anyone for that matter can get their parents or another person to be their guarantor. You may have heard of 100% LTV mortgages? This is only because the buyers have a guarantor, an extra person to back up their mortgage and they themselves must also be a homeowner and have a strong credit history.
Less pessimistic attitudes?
So, with the news of the removal of stamp duty for first-time buyers, Millenials have pricked up their ears to the newfound idea that they may just be able to afford a home in the future. This tax break may lead to a more optimistic attitude amongst young people on property-buying than was recorded in 2015 by Halifax. In its Generation Report, it revealed that the number of people who felt they never would be able to get onto the property ladder in the UK had risen. This number rose to over 82% of people aged between 20 and 45 in London who believed it would never be possible to own their own home.
But what does it all mean, and will it really save young people money? Here is our guide on everything you need to know on stamp duty for first-time buyers in light of the recently announced changes.
What is stamp duty exactly?
Stamp duty tax (or as its known in Scotland, the Land and Buildings Transaction Tax) is a progressive tax (meaning the amount paid will increase as the price of the property rises) that anyone buying a property or land pays once it has reached the tax threshold. This is all residential properties over £125,000 (which included first-time buyers up until 22 November). Stamp duty is paid only for the sum of the property that is at that rate.
Who counts as a first-time buyer?
You might think this is self-explanatory, i.e. someone who’s never owned a property (that’s whether inherited or bought), but there are some important clarifications that need to be made with regards to the exemption of stamp duty. You are not included as a first-time buyer if you are intending to buy your first property and then let it out.
How much will I save as a first-time buyer?
This depends on a number of factors, including:
- Where you live in the UK. The changes to stamp duty will apply to England, Wales (but take note that stamp duty will be devolved to Wales from March 2018) and Northern Ireland. However, the same rates will not apply to Scotland as they have an independent system of land tax.
- The previous rates will apply to anyone buying a home worth more than £500,000, and you will not save any money from the proposal.
- If you are keen to find out just exactly how much you would pay for stamp duty, (if any) there is an extremely handy stamp duty calculator provided by MoneySavingExpert that allows you to make these calculations and save you the hassle.
How does it work in Scotland?
It may have a slightly different name, but it works in roughly the same way to the system used by the rest of the UK. The fundamental difference is the rates paid. For example, nothing is paid for properties worth less than £145,000, 2% on properties between £145,000 and £250,000, and 5% on properties above the price of £250,000.
Is it that much money?
According to the chancellor, the proposal will mean that over 80% of first-time buyers will pay nothing at all, with a dramatic 95% at least receiving a deduction. However, if we break down the numbers, this may not amount to as much as one expects.
For example, an average first-time buyer buying a property worth £200,000 will save about £1,500, which is a fairly minimal amount. Nevertheless, that is not to say that a decrease is not welcome: with the record for the price paid for first-time buyers on is now at an all-time high, a reduction in spending is a step in the right direction.
Furthermore, whereabouts you live in the UK will seemingly be a determining factor in how much you save. In the North, many properties just about reached the previous tax duty threshold of £125,000, meaning huge savings are less likely. However, for those in London, where house prices have grown exponentially in the last decade, as a result making property prices some of the highest in Europe, the abolition of stamp duty could have significant benefits.
Not all good news?
Some potential words of warning on this seemingly good news: the independent Office for Budget Responsibility (OBR) has warned that this proposal could actually make it more difficult for first-time buyers. The OBR has warned that those most likely to benefit from this tax break would actually be likely to be those who own property already. They also expect that the tax break is likely to increase property prices in 2018 at a rate of about 0.3%
However, the OBR said the tax break was likely to push property prices up by about 0.3%, with most of the increase taking effect in 2018.