Stamp Duty Holiday, Mortgages and the housing market - Everything you need to know
Listed Under: Blog
Rishi Sunak announced this week (9thJuly 2020) a temporary stamp duty holiday to get the housing market moving again. The threshold has been raised from £125,000 (£300,000 for first time buyers) to £500,000 until March 2021 in England and Northern Ireland. This means that you won’t pay any stamp duty on the first £500,000 of the cost of your new house, on your main residence. If you are buying a second home, the rules are slightly different.
Part of Sunak’s announcement confirmed, “The average stamp duty bill will fall by £4,500. And nearly nine out of 10 people buying a main home this year, will pay no stamp duty at all.”
What is stamp duty?
Stamp duty is a tax paid by people buying properties whether leasehold or freehold, in England and Northern Ireland. The amount paid is dependent on the price of the property.
Under the old rules, you would pay, £0 stamp duty up to £125,000, 2% up to £250,000, 5% up to £925,000, 10% up to £1.5m and 12% above £1.5m on your main residency. First time buyers didn’t have to pay stamp duty up the first £30,000. There is a 3% surcharge on second homes.
What has changed?
Put simply, the threshold has been raised to £500,000 for all home buyers.
These changes have come in with immediate effect and should mean big savings for home buyers that are in the process of buying (but not completed) and those looking to buy over the next 8 months.
What does all this mean for the housing market now?
Coronavirus has already impacted the housing market as people have been hit financially by the crisis. Across the country, house prices have been falling, however in the East Midlands, we are seeing a bubble; house prices are remaining stable, estate agents are busier than ever and there is a situation of over-demand and undersupply of houses, ensuring the prices remain buoyant.
We’ve seen a recent increase in Gazumping, where house sales have fallen through because another buyer has come in and offered more, sometimes asking more than the asking price. Gazumping is not an ethical practice, but estate agents are bound to pass on every offer provided to sellers.
Although the announcement of the Stamp Duty holiday is great news for buyers, over the past few months it has become a harder market to secure mortgages for home buyers.
In response to the current situation, mortgage lenders have been steadily pulling any mortgages above 85% of the value, meaning buyers need at least a 15% deposit before having any option for a mortgage. We have seen an increase in support from parents and relatives as well as clients using reserves to bulk up deposits.
Additionally, lenders have a reduced appetite for risk and have become stricter with their lending criteria. We have seen furlough, government support received (such as self-employment grants) or mortgage holidays being taken into account on lenders affordability calculators and navigating this new environment can be difficult.
It’s not all bad news, if buyers have the deposit the mortgage rates are currently the lowest, we have seen them from as little as 1.5%. Previous lows have only seen between 2% and 2.5% so now is a great time to review your mortgage. This is especially true if you are looking to move, but just as important if your mortgage is up for review.
Frequently asked Questions
How much stamp duty will I have to pay?
This depends on the value of the property, your circumstances and the stage of your purchase. If your new property will be your main residence, you will pay £0 up to the first £500,000. If your property value is more than this, you will pay whatever you would have paid before the changes, minus £15,000 (£10,000 if you are a first-time buyer).
Will the stamp duty holiday apply to second homes or buy to let?
Landlords or second home buyers will also benefit from the saving but will still have to pay the additional 3% surcharge.
Will stamp duty holiday be backdated?
Unfortunately not. If you have completed your purchase, you won’t benefit from the holiday. If you are in the process of purchasing and not yet completed, then you can still benefit from the changes.
What’s the benefit of speaking with an advisor?
With the changes to stamp duty and the difficult housing market, now is the time to speak to an independent advisor. They can help look at your specific situation and use their knowledge and experience to match this to the lender's strict criteria. Having an independent conversation with an advisor can save time searching the market or meeting with a bank for advice, which are at least 2.5 hours long. A meeting with our advisor lasts just 1 to 1.5 hours maximum.
When is the best time to contact an independent mortgage advisor?
As early as possible. As soon as you have made the decision to move house, its best to reach out to an advisor that can not only advise on the best lender options for you but can also help you be mindful of what is presented, get the right paperwork in order in plenty of time and help pull the jigsaw pieces together.
Buying a house is a very time-dependent process and having all your ducks in a row before the critical moment of putting in your offer helps ensure the process moves as quickly as possible, increasing your chances of securing your home.
What does this mean for me now?
If you are considering purchasing a house, have already started your hunt or found your next property, now is the time to get in touch with us. We offer a complimentary initial review; you can book yours now using the link below. In this review, we can look at your specific circumstances and help you make the most of this opportunity.