With the introduction of the new stamp duty exemption for the majority of first time buyers and the Help to Buy Isa there is more help available to first time buyers than ever before. In this blog, I will discuss the help that is currently available to assist first time buyers in getting their first step on the property ladder.
First Time Buyers Stamp Duty Exemption
In the budget on the 22nd November, the Chancellor announced a relief from Stamp Duty Land Tax (SDLT) for first time buyers. Providing that the purchaser intends to occupy the property as their only or main residence, they have never held an interest in another property anywhere in the world and the purchase price is £500,000 or less, then the relief will apply. First time buyers purchasing their first home for £300,000 or less will pay no stamp duty. Where the purchase price exceeds £300,000 but is not over £500,000, then they will pay stamp duty on the amount above £300,000.
The relief applies to purchases in England, Wales and Northern Ireland. In Wales it will apply until the introduction of the Land Transaction Tax which is being introduced on 1 April 2018. This means potential savings of up to £5,000 for first time buyers. If the purchase price is over £500,000, then you will not be entitled to claim the exemption and will pay stamp duty at the normal rates. A full calculator is available online on HMRC’s website at https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax
A number of first time buyers may look at buying a shared ownership property and wonder whether they will qualify for the exemption. Guidance issued suggests that the relief will not apply if a first time buyer opts to pay stamp duty on just the share being purchased. In order to qualify they must pay stamp duty on the whole of the property rather than the share that they are purchasing. As an example, if you were buying a shared ownership property worth £325,000 and you opted to pay stamp duty only on your 50% share, you will not qualify for the exemption. The bill would be £750, but when you come to staircase (that is purchase the other share), you would need to pay an additional £5,500 (or more if the property's value has increased). If you opt to pay stamp duty on the full market value of the property you will qualify for the exemption and the total bill would be £1,250. If you plan on staircasing in the future, or if you would have to staircase in order to sell the property on, then if you can afford to pay £500 more, this would be an overall saving of at least £5,000 in the long run.
There are a number of conditions to the first time buyer’s exemption and the HMRC’s full guidance notes are available online at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/661728/8274_guidance_note_SDLT_relief_for_first_time_buyers.pdf
Help to Buy Isa
The Help to Buy ISA was introduced to help boost first time buyers’ savings and help them on the property market. For every £200 you save, you will receive a government bonus of £50. The maximum government bonus available is £3,000 and the minimum is £400, so you will have to have saved at least £1,600 into your Help to Buy ISA before you can claim your bonus. The Help to Buy ISA is available per person and not per household, so if you are buying jointly, both parties can take advantage of the scheme. The Help to Buy ISA is available from a range of high street banks.
When you come to purchase a property it is imperative that you inform your solicitor immediately upon instruction that you will be using the Help to Buy ISA, as they need to apply at the correct time for your government bonus. The funds must be used at the completion of the property transaction. The bonus cannot be used for the deposit due at exchange, to pay for solicitors, estate agents fees or any other indirect costs associated with buying a home. To find out if you qualify for a Help to Buy ISA you can check online at https://www.helptobuy.gov.uk/help-to-buy-isa/who-is-eligible
Help to Buy Equity Loan
This is available to first time buyers purchasing a New Build property with a purchase price of up to £600,000. With the Help to Buy the government will lend to you up to 20% of the cost of your new build home so that you only need a 5% cash deposit and a 75% mortgage to make up the rest.. No loan fees will be charged on the 20% loan for the first five years of owning your home. In Greater London the equity loan upper limit is increased from 20% to 40%. You will not be able to sublet your property, so if you plan on letting a room then this will not be suitable for you. Further information can be obtained in relation to this scheme at https://www.helptobuy.gov.uk/equity-loan/eligibility
As you can see, 2018 is an excellent time to be a first time buyer as there is more help out there than ever before. Mortgage lenders are also becoming more accepting of gifted deposit from parents which is also assisting clients in getting on the property ladder. If you are a first time buyer and would like to discuss your purchase further, please contact me.