Stamp Duty Cut for thousands of Home Buyers

Stamp duty has been cut substantially in a move that the Treasury says will mean 9 out of 10 buyers paying no stamp duty at all this year.

Speaking in the House of Commons today, Chancellor Rishi Sunak has temporarily increased the threshold at which Stamp Duty is paid to £500,000 meaning that those buying a main home will pay nothing on the first £500,000.

This is up from £300,000 for first-time buyers and £125,000 for other buyers.

This is effective immediately and will apply until 31^st March 2021, forming a “holiday” period for thousands of buyers.

What is Stamp Duty?

In England and Northern Ireland, Stamp Duty Land Tax, (SDLT) is a tax paid to the Government on all land or property purchases. It is paid by the purchaser on completion.

At present, there is nothing to pay on the first £125,000, after which an increasing amount is paid on each additional “portion” of the purchase price.

The table is as follows:

However, for first-time buyers, the zero-rate band was recently extended to £300,000, with 5% being paid on the subsequent amount up to a maximum of £500,000. In other words, they would pay £10,000 in Stamp Duty rather than £15,000.

As of today, however, the new table is as follows:

This means that anyone purchasing a new property at £500,000 will now save £15,000, (or £10,000 if a First-Time Buyer).

Stamp Duty for Second Properties & Buy-to-Let Investors

Somewhat surprisingly, this saving has been passed on to everyone buying a residential property, no matter what the overall value or whether it is a second home or part of a buy to let portfolio.

However, anyone who is purchasing a second property or more will still have to pay the additional property surcharge of 3% on the total property value.

In other words, the following rates will apply:

Companies as well as individuals buying residential property worth less than £500,000 will also benefit from these changes, as will companies that buy residential property of any value where they meet the relief conditions from the corporate 15 percent SDLT charge.

Our Comments

With the changes to Stamp Duty announced on Wednesday, the Chancellor has provided another welcome boost to the property market and reiterated exactly how important bricks and mortar is to the health of the economy and broader consumer sentiment.

It is a relief that the Stamp Duty changes come into effect immediately, although we are concerned that the March 31 deadline may be premature.

If the economy hasn’t stabilised by April as planned, house prices could come under extra pressure when the Stamp Duty holiday comes to an end.

Holiday periods tend to result in an artificial period of higher demand, driving up prices and therefore reducing the real impact of the changes. For those looking to buy, it is important to make sure that the additional savings go towards a higher deposit, potentially putting you into a cheaper rate band, towards furnishing the property or potentially purchasing a more desirable property with some extra spending power.

We do not want to see prices for the same property escalating just by the amount of the stamp duty saving.

For now, at least, it is good news for many prospective buyers around the country and will go some way to offset the reduction in the number of mortgage products available at 90% Loan-to-Value, giving buyers a little more cash for a deposit. It may also act to give lenders more confidence to make available more higher loan-to-value products.

There is also the question over whether Stamp Duty changes alone will really solve housing market woes at a time when many borrowers are faced with difficulties obtaining mortgages due to job insecurity, are deemed “mortgage prisoners”, or are faced with issues around cladding.

It is interesting that the Chancellor has also included additional and investment properties within this, with buyers now just paying the additional 3% charge. Whilst this may put First-Time Buyers directly back into competition with Buy to Let landlords once more, for landlords who have felt like they have been picked on for some time it is a welcome relief.

There is a good opportunity now for landlords to expand portfolios and to help increase the supply of rental properties, which is also an important part of ensuring a robust, balanced and healthy housing market.

Lenders and Mortgage Rates

That said, there is plenty of good news out there and lenders are at least starting to increase their capacity once more, offer more choice and speed. Interest rates remain low and with the Bank of England reportedly asking lenders to think about how negative interest rates would impact them, they look set to stay at this level for a long time to come.

In terms of mortgage rates, for standard residential mortgages, borrowers can obtain 2-year fixes at 1.09%, (3.90% APRC) and 5-year fixes from 1.39%, (2.80% APRC) whilst variable tracker rates are around from 1.24%, (3.90% APRC).

Those looking at Buy-To-Let can now obtain products from 1.19%, (4.55% APRC) for 2-year fixed or 5-year fixes are available from 1.62% (3.77% APRC).

To find out more and take advantage of the latest Stamp Duty cut or the latest low rates please speak to one of our professional, friendly advisers on 020 7220 5110 or click here.