First-time buyers unsure about stamp duty – what do you need to know?

First-time buyers unsure about stamp duty – what do you need to know?

Online estate agent Tepilo looks at why confusion still reigns among first-time buyers with regards to the recent stamp duty changes.

First-time buyers unsure about stamp duty – what do you need to know?

Despite the high-profile nature of the stamp duty cut for first-time buyers – one of Philip Hammond’s key proposals in the last Budget – research carried out by online broker L&C Mortgages has revealed there remains significant uncertainty about the impact of this change.

According to the findings, nearly a third of English first-time buyers don’t know if the abolition of stamp duty on homes worth under £300,000 will benefit them when they purchase their first home, while over a fifth (22%) have not changed their minds on the price of the house they want to buy in light of the stamp duty changes, because they are unaware of the impact the new rules will have on their potential property.

The lack of education around the advantages of stamp duty relief were also brought into sharp focus when first-time buyers were asked how much they thought they would save if they bought their first home without having to pay stamp duty. Some 13% thought that they would save more than £5,000, which is impossible under the new rules.

In addition, 38% said that they didn’t know how much they would save if they purchased their first home now.

The research showed that just over half (52%) of first-time buyers think they will benefit from the stamp duty abolition when they acquire their first home. Of those seeking to buy a property priced between £125,000 and £500,000, 42% either believed that stamp duty relief would not benefit them, or didn’t know if it would – a further example of a lack of knowledge about the new rules.

Calls for a complete abolition

For the majority of English first-time buyers, the government’s recent stamp duty changes didn’t take things far enough. Some 62% believe that stamp duty should be abolished for all first-time buyers regardless of the price of the home they are purchasing.

While a complete abolition would lead to financial savings for many, it also highlights the desire for a more simplified and transparent system – where everyone plays by the same rules, rather than falling into different brackets.

Thanks to the changes, some first-time buyers now don’t pay any stamp duty on their purchase. Anybody buying their first home for below £300,000 is exempt from paying stamp duty. There are also reduced liabilities for those buying homes worth between £300,000 and £500,000, to help out those first-time buyers purchasing in more expensive areas such as London.

In this threshold, buyers only pay 5% stamp duty on the £300,000-£500,000 portion of the property. Those buying a property worth £410,000 – the cost of the average first-time buyer home in London – would now pay £5,500 in stamp duty, down £5,000 on what they would have paid before the new regulations came into play. Anyone buying a home for £500,000 or more will face the normal stamp duty rates on the whole purchase price.

With the average first-time buyer spending around £207,000 on their first home, the government has predicted that up to 95% of first-time buyers will benefit in England and Northern Ireland, while 80% of buyers in London will get a helping hand from the stamp duty cuts.  

The majority of first-time buyers now won’t pay a penny in stamp duty costs, saving an average of £1,650.

Has the stamp duty cut actually helped first-time buyers?

While the stamp duty cut represents a nice saving for first-time buyers, getting to the stage of buying a home in the first place is still difficult thanks to the large deposits typically, which can take people years to accrue. Low interest rates have thwarted savers, which means many first-time buyers need assistance from the Bank of Mum and Dad, inheritance or government home-buying schemes.

But those who are in a position to buy are gaining as a result of the stamp duty exemption. Almost 70,000 first-time buyers had benefitted from the scrapping of stamp duty by April 2018, HMRC figures released at the time revealed. First-time buyers in London saved the most (an average of £4,300), while buyers in Northern Ireland saw the lowest saving at £800. However, the average house price in London is a lot higher than in Northern Ireland, which goes a long way to explaining this disparity.

Despite the above, the growth in overall sales to first-time buyers has been modest since the introduction of the stamp duty changes, which suggests that many prospective first-time buyers are still finding it difficult to purchase a home because of high buying costs and difficulties in raising the required deposit.

Given the savings most first-time buyers can make as a result of the stamp duty changes, especially in London, it’s slightly worrying that a significant portion of these buyers are unaware or confused about how they can benefit.

The government need to make it clearer who benefits – and how – to ensure first-time buyers aren’t missing out.