Stamp Duty changes and the current housing market
After a strong start to 2020 the housing market was severely impacted, in mid-March, by the coronavirus pandemic. The demand was still there, however the inability to view or value houses coupled with mortgage providers revisiting their own risk strategies led to a decline in property movements.
The key drivers to the continued demand include recent Stamp Duty changes, a relaxation of coronavirus restrictions and a subsequent return to market of pent-up springtime demand.
To aid recovery in the housing market The Chancellor has assisted potential buyers with a Stamp Duty Land Tax (SDLT) ‘holiday’. This consists of a temporary raising of the threshold from £125,000 to £500,000 for homes purchased in England and Northern Ireland between 8 July 2020 and 31 March 2021. Different threshold criteria apply to properties purchased in Scotland or Wales.
This stimulus has assisted first time buyers that were looking to start a house search earlier in the year. These buyers now find themselves in an improved position to obtain a mortgage as they may be able to utilise a larger deposit because of the tax cut.
In addition, there are also those who are now considering what they want from a home following a long period in lockdown. This group consists of a growing number of people who have started to look at their future needs – such as a bigger garden or space to work away from the office.
Finally, from an opposite perspective, other negative forces are driving activity in the housing market including the shadow of recession, job insecurity because of the end of the furlough scheme, concerns about unemployment and the end of mortgage payment holidays.
What is Stamp Duty Land Tax?
If you buy a property or land over a certain threshold in England or Northern Ireland you have to pay SDLT.
Certain thresholds apply to movers and first-time buyers. Under previous limits property costing over £125,000 was liable for tax by those moving house. First-time home buyers benefited from a slightly higher threshold limit of £300,000. Both groups will benefit from the raising of the threshold to £500,000 during the temporary ‘holiday’ period.
Different thresholds apply to those purchasing property for other uses such as buy-to-let, second homes, holiday homes and commercial purposes.
Calculating how will Stamp Duty changes could affect your purchase choices
In order to provide you with an accurate guide to the fees that you are likely to incur during the process of buying a property we will ask you a number of questions.
- Is your proposed property purchase in England, Northern Ireland, Wales or Scotland?
- What is the property purchase price?
- Is the property leasehold or freehold?
- Are you a first-time buyer or home mover?
- Is this an enquiry about your main home or a second home?
- Are you buying for property investment or business reasons (e.g. on buy-to-let, holiday let or commercial investment)?
- Are you buying commercial property, agricultural or development land?
Such questions will help guide discussion about the tax rates that will apply to you and help us provide you with an accurate calculation of the Stamp Duty liability.
What are the current stamp duty rates?
The Government provided a stimulus package to the housing market by reducing stamp duty rates. This is a temporary measure and will be applicable from 8 July 2020 until 31 March 2021. Home buyers won’t pay tax on the first £500,000 for main residences in England and Northern Ireland. The thresholds for this period are £0–500,000 (0%), £500,001-£925,000 (5%), £925,001-£1.5m (10%) and £1.5m+ (12%). The tax operates in a tiered structure which means that you pay different rates of tax depending on different portions of the total price.
Prior to the temporary ‘holiday’ period first-time buyers did not pay Stamp Duty on purchases up to £300,000 and paid 5% on the portion from £300,001 to £500,000. House movers paid on a tiered payment scale with the threshold starting with purchases over £125,000.
The current tax ‘holiday’ also benefits landlords and second home purchasers but they will still be liable to pay the 3% extra SDLT that was applied under the previous rules
As with any tax scheme the devil is in the detail and you may want to speak to us about calculating special surcharges that are payable by property investors or if you are planning to buy in Scotland or Wales. In Scotland the tax is known as the Land and Buildings Transaction Tax and the Land Transaction Tax is paid on properties purchased in Wales.
Case Study (based on an individual moving home/upsizing with a purchase price of £700,000 in England)
Pre Stamp Duty Changes
Stamp Duty Liability £25,000 (made up of £0 to £125,000 = £0, £125,000 to £250,000 = £2,500, £250,000 to £700,000 = £22,500)
Post Stamp Duty Changes
Stamp Duty Liability £10,000 (made up of £0 to £500,000 = £0, £500,000 to £700,000 = £10,000)
Saving to you £15,000
Mortgage advice and Stamp Duty
Stamp Duty (SDLT) is a topic that tends to arise when people are looking into the prospect of buying their first home/moving home (upsizing or downsizing).
If you require independent mortgage advice then the team at Suttons will be happy to help you. We can discuss how SDLT costs fit into your overall budget and provide comprehensive advice on every form of property transaction. We have over 30 years of industry experience in providing mortgages for first-time buyers, movers, residential and commercial property investors.
Our personal advisers will be happy to discuss the end to end mortgage journey including:
- How much you can afford (Mortgage in Principle)
- Finding your way through the mortgage maze and the best mortgage option for you (e.g. fixed rate, variable, repayment or interest only)
- How long the legal and conveyancing timeline takes
- Your SDLT calculations
- What property surveys are available
- Tips for First Time Buyers, Home Movers and experienced Property Investors
- How you can protect your life and income with life insurance, income protection and critical illness cover
Suttons are a truly independent provider of mortgages and have access to the “whole of market”. This means that we have no affiliation to a particular provider and are here to provide you with the best mortgage, tailored to your personal circumstances.
Next steps: what can you expect when you make an enquiry about Stamp Duty or mortgages?
At Suttons our goal is to build and develop deep and meaningful relationships with you and to be with you for the long haul. We pride ourselves in providing excellent customer service. When you make an enquiry with us your personal advisor will;
- Respond to you within 24 hours and provide a named contact who will support you from enquiry through to completion
- Provide a truly personal service and work with you at times that suit your busy lifestyle
- Research the whole of market and tailor our advice and planning to suit your specific needs
- Provide ongoing after care to ensure that you remain on the most competitive deal based on your personal circumstances
Finally, it is important to note that this content should not be taken as financial advice. It is for information purposes only.
As advisers, it is our role to help you understand what the implication will be should you choose to go with any of the above arrangements.
This article was written by Rob Ferguson, Mortgage Adviser at Suttons Independent Financial Advisors.
Contact me today on 0161 969 1703 or email rob@oursocialteam.uk
“YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.”
Published: September 2020
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