Urgent warning to first-time buyers after Budget tax hike – five ways you can beat soaring costs

11/08/2024 04:52 PM

FIRST-TIME buyers face paying £1,400 MORE in tax to buy a home after Rachel Reeves' Budget.

The Chancellor had promised to make it easier to get on the housing ladder – but experts are now warning that the changes to stamp duty will force thousands to delay making the move.

Home movers will also be hit with a £6,400 bill after April next year.

Rosie Murray-West explains what is happening and the impact on the housing market.

THE HIDDEN CHANGE

IN her first Budget, Rachel Reeves revealed a hit to anyone buying a second home by increasing stamp duty charges from 3 to 5 per cent.

But she was less vocal about changes to stamp duty relief for first-time buyers from April 1, 2025.

At present, first-time buyers pay stamp duty on any property over £425,000, but this will dip back to £300,000.

Other buyers pay the tax on properties above £250,000 and this will return to £125,000.

The tax is set at 5 per cent of the property price above the threshold, rising to 10 per cent for any part over £925,000.

First-time buyers will receive no extra relief if the home they buy is worth over £500,000, instead of the current £625,000.

FIRST-TIME BUYERS HIT

DESPITE promises that things would be easier, brokers say the changes will have a negative impact on first-time buyers.

From April next year, a first-time buyer purchasing an average price property worth £328,000 will now face £1,400 in upfront costs.

A home-mover buying the same price property will pay £6,400 in stamp duty from April 2025, up from £3,900 at present.

Mortgage broker John Fraser-Tucker says: "This change could force many to delay their dreams of home ownership."

The change puts stamp duty thresholds back to the levels they were before Liz Truss's 2022 "mini-budget".

Movers buying a £425,000 home will pay an extra £2,500 in stamp duty, a total of £11,250.

First-time buyers, who currently pay no stamp duty, would pay £6,250 on a £425,000 home.

Andrew Greenwood, of Leeds Building Society, says the change means London first-time buyers will need to keep renting for an an extra year to save up for the tax.

"Our country needs to develop a long-term, joined-up plan to improve stability in the housing market if we are to solve the problem," he said.

Government watchdog the Office for Budget Responsibility says that the amount of stamp duty paid to HMRC per year will go from £14.1billion to £25.4billion in five years' time.

HOW IT WILL ALSO AFFECT MOVERS

AS well as stamp duty, other costs faced by buyers are also increasing.

Property expert Karen Noye, from wealth manager Quilter, predicts that a rush of buyers trying to beat the stamp duty deadline could cause a hike in house prices, meaning homeowners will need to borrow more.

The Budget also means the cost of borrowing will likely be more expensive, despite this week's bank rate cut.

Gilt yields — the amount the Government must pay to borrow money — rose after Reeves said she would borrow more cash to fund her Budget, and these can push up mortgage rates.

Mortgage broker David Hollingworth, from London & Country, says that even after the base rate cut, fixed-rate mortgages could still "nudge up" if higher market rates persist, which would make funding a house purchase more expensive in the short-term.

According to financial data service Moneyfacts, the average two-year fixed rate mortgage was at 5.38 per cent this week, up from 5.36 per cent on October 11.

A 25-year mortgage on a £328,000 property with a ten per cent deposit would cost £1,792 a month.

IT’S BAD NEWS FOR RENTERS TOO

THE Budget was also bad news for those who need to rent a property until they can save enough for a deposit, as many believe rents are set to rise too.

Reeves added a stamp duty surcharge on those buying second homes, while the recently announced Renters' Rights Bill contains protections for tenants that could push up costs.

Stuart Collar-Brown, of estate agency membership body Propertymark, says landlords will exit the market leaving fewer homes and higher rents.

Finally, champions of first-time buyers noted the omission of the Freedom To Buy scheme from the Budget.

The scheme was unveiled before the Labour victory, with Starmer promising it would get 80,000 people on to the housing ladder, with the Government acting as a guarantor for those unable to save big deposits.

"The failure to implement the Freedom To Buy scheme, a cornerstone of their manifesto, is likely to have left aspiring homeowners feeling deeply disillusioned," says John Fraser-Tucker, from Mojo Mortgages.

The scheme offered a glimmer of hope, particularly for those struggling to save large deposits in high-demand areas."

ACT FAST TO BEAT THE RISING COSTS

IF you want to save thousands in stamp duty by buying before the April 1 deadline, meticulous preparation and quick thinking are key.

Nicholas Mendes, from mortgage broker John Charcol, gives his top tips for first-time buyers wanting to get a purchase across the line before the stamp duty increase hits.

 GET A MORTGAGE IN PRINCIPLE: Before you even view a property, check how much you can borrow by talking to a mortgage broker or lender.

This can strengthen your position as buyers and enable you to act quickly when you find a suitable property.

You should also budget for other costs at this point, including legal fees, surveys and moving expenses, to ensure complete financial readiness.

RESEARCH THE LOCAL MARKET: Knowing how long it takes properties to sell in your area will help with negotiations, while signing up with local agents can help you get in first with the deals.

An agent can help identify suitable properties and alert buyers to new listings as soon as they become available.

ENHANCE YOUR CREDIT SCORE: Banks are often more cautious with first-time buyers, so your credit score – which shows a lender how you manage your money now – is particularly important.

Avoid making new credit applications in the months leading up to your mortgage application, as each inquiry can temporarily lower your score.

Ensuring all bills and debt repayments are made on time is crucial, as missed payments can significantly impact your score.

 CUT DOWN ON YOUR SPENDING: Lenders check your recent bank statements for regular outgoings, so now is the time to cut down on anything you can.

This means avoiding large transactions that might be hard to explain.

If you have regular monthly subscriptions, it might also be wise to cancel any unnecessary ones.

 HAVE DOCUMENTS READY: Mortgage lenders require a detailed view of your financial health, so getting your finances in order is essential.

"Begin by gathering key documents such as recent payslips, tax returns and bank statements from the last three to six months, and any other evidence of income.

It's also helpful to have documentation on hand for any other sources of income, such as bonuses, freelance work or government benefits.