The Chancellor has announced that stamp duty is to be abolished for all first time buyers on properties bought up to £300,000, effective from today. In addition, first time buyers purchasing properties up to £500,000 will pay no stamp duty on the first £300,000.
In his Budget, Philip Hammond announced that 80% of first time buyers would pay no stamp duty at all. With 358,000 first time buyers in the last year, this means that at least 24% of all sales in the UK’s housing market are set to be charged 0% tax. Once other exempt sales under £125,000 are taken into account, this figure will be even higher.
Two thirds of properties bought so far this year across the country have been under the new threshold but there are large regional variations. In Wales and the North East, over 90% of sales in the last year have been over £300,000 while just 17% of sales in London were for less than £300,000.
While good news for first-time buyers, this will further squeeze investors in the sub-£500,000 market who are already suffering from increased taxes. What's more, it does not, give any encouragement to owners higher up the chain to downsize.
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Mortgages offering incentives like cashback are becoming increasingly popular to draw homebuyers in. Is this the right option? We take a look at the pros and cons.
More and more lenders now offer mortgage deals which come with incentives to attract borrowers and to differentiate themselves from the competition. Mortgage rates are currently extremely competitive, so an extra benefit or bonus is one of the only ways for a deal to stand out from the crowd.
Incentives can take several different forms. For example, lenders will require a valuation of a property to make sure it is security for the loan and worth as much as the homebuyer is paying for it. The cost of a valuation will depend on the size of the property, but typically starts from around £250, rising to about £2,500 or more for homebuyers purchasing high-end homes.
Some lenders will offer a free valuation as part of a mortgage deal, although this will usually only cover the cost of a basic valuation report rather than an extensive structural survey, which many people opt for when buying a home. Also, lenders may set a minimum purchase price and only offer free valuations on properties over that value.
Other lenders provide free legal work for those who are mortgaging, but remember to check the small print for any restrictions.
Cashback is becoming one of the most popular mortgage incentives. Lenders will pay borrowers a lump sum, typically starting from £250, when their mortgage deal completes.
The amount of cashback offered has crept up in size in recent years, with many lenders now providing cashback of around £500, although some payments can be as high as £2,500. This can be particularly appealing for first-time buyers who often put the money towards stamp duty or moving costs.
However, it’s important that homebuyers do not to base their mortgage decision on incentives alone. Deals which offer cashback or any other incentive may charge a higher interest rate than deals which don’t come with any added extras, making them more expensive overall.
It’s vital that homebuyers think carefully about how important up-front cash is compared to lower monthly payments. Could an interest rate saving outweigh any incentive in the longer term? If in doubt, homebuyers should seek professional advice on the best combination of rate, fees and incentives to suit their individual circumstances.
Need some mortgage advice? Get in touch with L&C Mortgages today.
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