How to take advantage of the Stamp Duty holiday

The latest plan to stimulate the housing market, post-UK lockdown, was revealed last week by the Chancellor Rishi Sunak. He announced with immediate effect that Stamp Duty on all property purchases below the value of £500,000 would be put on hold for the next six months until March 2021.

How will this affect your mortgage application and what can you do to take advantage of the opportunity?

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What is Stamp Duty? 

Stamp Duty is an unavoidable cost for the majority of homebuyers and has to be taken into consideration when purchasing a property. Until the Chancellors announcement, stamp duty became payable on a property purchase over £125,000 (£500,000 for first time buyers).

You pay the tax when you:
  • buy a freehold property

  • buy a new or existing leasehold property
  • buy a property through a shared ownership scheme
  • are transferred land or property in exchange for payment, for example you take on a mortgage or buy a share in a house.

Currently the tax is paid in bandings, in percentages based on the value of the property and is paid when completing the purchase. The banding on residential properties before the temporary change was implemented had been:

Property or lease premium or transfer value

Stamp Duty rate

Up to £125,000

Zero

The next £125,000 (the portion from £125,001 to £250,000)

2%

The next £675,000 (the portion from £250,001 to £925,000)

5%

The next £575,000 (the portion from £925,001 to £1.5 million)

10%

The remaining amount (the portion above £1.5 million)

12%

The rates may differ compared to a buy-to-let or purchasing a second property. You can find the full details on the official government page.

Will this actually help the housing market?

As well as the Bank of England reducing the UK base rate to a historic low, there are signs that property values are also starting to decrease. This has created a property market that is ideal for many people looking to buy or move home, as CMME recently highlighted in this article: Why now is the right time to move forward with your mortgage plans.

The opportunity to secure historically low interest rates, along with the viability of a stronger negotiating position is sure to make it a very attractive market for purchasers. However, this is likely to best suit existing homeowners or first time buyers with sizable deposits. As Rightmove property expert Miles Shipside noted, “buyers in higher priced areas with bigger deposits would benefit most while low deposit mortgage options remain scarce.”

Will this affect my mortgage application?

As is stands, a mortgage lender will not loan additional funds to cover the cost of Stamp Duty. Before considering a property purchase you will need to hold sufficient equity within your existing property, or money set aside specifically to cover the costs of completing a move. It’s essential to remember this can include removal fees, solicitors’ fees and of course Stamp Duty.

Stamp Duty is not often a significant factor for a lender assessing a mortgage application, however, the potential saving of thousands of pounds in Stamp Duty charges will impact how much you are able to include as a deposit. Arguably this is the biggest benefit for new purchasers as the temporary removal of the charge could provide the opportunity to secure a lower interest rate.

Most UK mortgage lenders have taken to removing low deposit mortgage options since the country went into lockdown, with 90 and 95 per cent loan to value mortgages becoming difficult to source. This has largely reflected concerns over property values decreasing, thereby raising risk for the lender. The removal of Stamp Duty may be a way for potential borrowers to make up the shortfall to reach the more widely available 85 per cent loan to value options, with the added benefit that the interest rate will also reduce at this level.

Speak to an expert

As partners of IPSE, we understand the way that the self-employed work and believe that applying for a mortgage deal doesn’t have to be complicated. We specialise in offering mortgage advice to independent professionals to offer tailored mortgage advice for your circumstances.

Speak to us today by filling out this short form and arrange a free no obligation chat about your mortgage plans.

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