April 2018 - Oakhill Independent Financial Services Limited

Low mortgage rates, high levels of employment and government schemes, such as Help to Buy, are all helping first-time buyers enter the housing market.

The recent abolition of Stamp Duty for a majority of first-time buyers looks set to provide additional help by reducing the upfront costs associated with making a first home purchase.

STAMP DUTY CHANGES

Except in Scotland, Stamp Duty was abolished last November for first-time buyers on homes worth up to £300,000. Particularly to help those buying in very high-priced areas such as London, a stamp-duty exemption is in place on the first £300,000 purchase price on properties valued up to £500,000; the additional amount up to £200,000 will incur 5% duty.

From April this year, property Stamp Duty matters in Wales will, as in Scotland, be devolved. The above concession will then cease to apply in Wales, but the new Land Transaction Tax there will have a £180,000 threshold for all purchases, not just those of first-time buyers. The Scottish Government has proposed a higher £175,000 (from £145,000) Land and Buildings Transaction Tax threshold for firsttime purchases as from 2018-19.

The government’s decision in November has had a mixed reception. Many believe that it won’t have a material impact, and some have warned that it will drive up house prices, leading to first-timers paying more for their houses than they are likely to save. A spokesman from the Number 10 press office defended the change in Stamp Duty, claiming in early January that 16,000 first-time buyers had already made a saving of up to £5,000 as a result of the cut, and estimated that more than 1m more would stand to benefit over the next five years. They also said that 80% of all firsttime buyers will pay no Stamp Duty under the rule change.

Those purchasing a £300,000 property are set to save the most, benefiting by £5,000. First-time buyers of more costly homes up to £500,000 see their Stamp Duty lowered by £5,000. However, there are also substantial worthwhile savings to be made on less expensive homes. Purchasing a property worth £208,000, the average price paid by a first-time buyer, would previously have given rise to a Stamp Duty payment of £1,660, but a first-time buyer will now be able to save this amount.

MORE HOUSING STARTS NEEDED

Some commentators have been quick to point out that the move doesn’t tackle the major issue which is the UK’s chronic housing shortage. The government has announced a series of measures designed to fix what they see as “the broken housing market”, and freely admits that at least 300,000 new homes are needed every year to keep pace with demand.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

There’s some better news for those who are looking to

make their move up the housing ladder. Second-steppers, as they are often referred to, are mostly couples and young families seeking to move on from their first home to somewhere bigger.

Figures from Lloyds Bank1 show that more than 370,000 homeowners were able to step up the housing ladder and purchase their next property with a mortgage in 2017, the highest recorded figure for the last ten years. The only region to record a fall in the number moving up was Greater London.

Homeowners ready to take their second or subsequent move have found it easier lately, thanks to a combination of factors, including low mortgage rates, high employment and the equity they have accumulated in their first home.

Strong house price growth has led to many second-steppers being in the happy position of having substantial equity in their homes.

This often means that they can afford to put down a bigger deposit on their next property, helping to get a better mortgage deal.

A LITTLE HELP FROM THE BANK OF MUM AND DAD

According to Lloyds, the difference in price between a typical first-time buyer’s

home and their next purchase is around £126,000. Their research found that on average they have £105,000 in equity from the sale of their first home, leaving a funding gap of around £21,000. It’s at this point that parents and grandparents often step in and help.

MAKING THE NEXT MOVE

In order to get more living space, second-steppers are adopting a number of buying strategies. Many are moving out of larger towns and cities to areas that are potentially less fashionable, but are less expensive. Some are actively seeking homes that they can extend to get the living space they need.

Multigenerational homes are becoming more common too, with families pooling their resources to buy a home that can accommodate them all. This has the benefit of allowing older homeowners to release equity that they can then share with their children, and younger families get the space they need to grow. Homes with annexes or with potential to be split in two can work well, as both generations get to retain their privacy and independence.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

1 Lloyds Bank, Jan 2018

First time buyers use stamp duty savings to cut mortgage costs

More homeowners climbing the ladder

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