Changes in the budget means most first time buyers will not pay stamp duty but the OBR expects house prices to rise instead.
The Chancellor Philip Hammond has abolished stamp duty for first time buyers increasing the threshold to £300,000 in England, Wales and Northern Ireland.
For home costing up to £500,000 the first £300,000 of the purchase price will not be subject to tax helping first time buyers in London.
It means 80% of all first time buyers will not pay any stamp duty saving up to £5,000 but the Office for Budget Responsibility (OBR) expects house prices to rise and benefiting home movers.
Savings for first time buyers
First time buyers are more cash constrained than other buyers and stamp duty land tax (SDLT) can represent an upfront burden on top of a deposit and conveyancing fees.
The following table shows the amount first time buyers pay in stamp duty before and after the changes from 22 November 2017.
| Property value | Before Budget | After Budget |
|---|---|---|
| £200,000 | £1,500 | £0 |
| £208,000 | £1,660 | £0 |
| £300,000 | £5,000 | £0 |
| £400,000 | £10,000 | £5,000 |
| £410,000 | £10,500 | £5,500 |
| £500,000 | £15,000 | £10,000 |
The Treasury estimate first time buyers will save £1,660 based on the average UK property value of £208,000.
In London the average price of a property bought by first time buyers is £410,000 and stamp duty will reduce from £10,500 to £5,500, a saving of £5,000.
The Treasury expect the cost to be £3.2 billion over five years and they estimate 95% of first time buyers who pay stamp duty will benefit, including almost 80% in London.
First time buyers can receive help from family members as the equity release buyer can access cash using a lifetime mortgage and gift the deposit for a home to children and grandchildren.
Stamp duty may not make a difference
Although first time buyers will reduce the cost of buying a new home, it is unlikely to significantly change the housing market.
For the average property purchase of £208,000 many buyers will need a 10% deposit or £20,800 to secure a lower interest rate mortgage compared to the stamp duty saving of £1,660.
In London with an average price of £410,000 a 10% deposit of £41,000 is significant compared to the stamp duty saving of £5,000.
A more significant impact has been the government’s Help to Buy scheme supporting 360,000 to buy a home and the total number of first time buyers increase by 70% between 2010 and 2016.
In October 2017 the government allocated a further £10 billion for the Help to Buy equity loan scheme which could support another 135,000 buy their first home.
The scheme promotes new home ownership for people that are renting and is not available to switching remortgage buyers or buy-to-let investors.
The OBR expects existing homeowners will benefit as the new rules are likely to increase house prices by 0.3% over the year.
What are your next steps?
Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property to improve your quality of life, pay for care at home or buy a more expensive home.
Learn more by using the property value tracker chart, mortgage calculator and equity release mortgage calculator. Start with a free mortgage quote or call us and we can take your details.
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