First-time buyers have five months to avoid stamp duty tax hit

First-time buyers look set to pay thousands more on stamp duty costs after Rachel Reeves opted to steer clear of any tweaks in the Budget.

It means the thresholds at which people start paying the property purchase tax will revert to the levels set before temporary changes were made in 2022 with first-time buyers being disproportionately hit. 

The price at which stamp duty starts to be charged will revert back to £300,000 for first-time buyers, from its current level of £425,000. 

Since late 2022, a first-time buyer purchasing a property up to the value of £425,000 has paid no stamp duty. If their home is more expensive, they only pay the tax on the portion above £425,000.

However, when this limit drops back to the old threshold of £300,000 from 1 April, it will mean the same £425,000 purchase will be subject to a £6,205 tax bill.

It leaves aspiring first-time buyers with five months before they might have to shell out thousands of pounds more.

The average newly listed asking price this month rose to £371,958, according to Rightmove.

Someone buying at the average asking price can expect to see their stamp duty bill rise from £0 to £3,598.

Tim Bannister, property expert at Rightmove said: 'There was no mention of retaining the current residential property thresholds for paying stamp duty, which means we expect that the typical first-time buyer will be over £3,500 worse off come 1 April based on current prices. 

'After paying fees, carrying out any surveys, and stretching their budget with high mortgage rates, this will be an unwelcome additional charge next Spring.'

Rightmove says it expects to see a rush of first-time buyers either bringing their plans forward or trying to get their deal done before charges go up. 

It currently takes a lengthy 152 days on average to complete a property transaction once a sale is agreed, according to the property website, which would mean agreeing a deal tomorrow to complete on time. 

Jeremy Leaf, the former residential chairman of Rics says that first-time buyers need to get a move on with sales taking roughly four months to complete.

'As the deadline looms, first-time buyers need to ensure they are ready to act quickly having spoken to a mortgage broker and getting their finance and legal representation lined up. 

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'Ideally, work on recommendations when it comes to a broker or solicitor so you know you are getting someone who is efficient and will advise you correctly.'

For those that have already had an offer accepted on a property, they will not only be at the mercy of the mortgage application and legal process.

Most first-time buyers will find themselves at the bottom of what is known as a property chain. This is where the person selling to them is trying to buy somewhere else from another seller who will be trying to buy something else and so on.

If one of these property sales falls through, it puts the whole chain in jeopardy or could at least result in lengthy delays to property transactions.

For those yet to find a property to buy, time is now really against them. 

'It's also important to have a good idea of what sort of home you want and where you want to live so you can act quickly if a suitable property becomes available as competition is likely to be fierce,' adds Leaf. 

However, he also warns people from rushing into a purcahse or panic buying just to avoid stamp duty. 

'There is nothing worse than buying in haste and repenting at leisure,' says Leaf, 'so you don't want to buy a property in order to save a few thousand pounds on stamp duty if turns out that you weren't that sure about it in the first place.'

More than nine in 10 homes to incur stamp duty  

From 31 March, more than nine in 10 homes for sale in England will incur stamp duty, according to new analysis by Leeds Building Society

While first-time buyers will see the threshold for paying the tax fall from £425,000 to £300,000. For all other buyers, it will be reduced to £125,000 from the current level of £250,000. 

It will result in buyers having to pay stamp duty on 93 per cent of properties on the market in England.

At the moment, buyers only pay stamp duty on 70 per cent of houses on the market.

When the threshold rises again, the amount owed on a typical home could go from £2,169 to £4,669, based on the average price of £293,299 in the latest Halifax house price index. 

In cheaper areas of the country, many more home buyers will have to pay the tax when they currently do not. In Yorkshire, buyers currently pay stamp duty on 49 per cent of houses currently on the market. 

However, once the anticipated changes come into force, this will increase to 86 per cent of homes in the county.

Jeremy Leaf adds: 'The loss of the stamp duty concession will be felt especially where prices are highest in London and the southeast, where they already constitute a deterrent to say nothing of deposit-saving and stricter lending criteria.

'We would have preferred to see a reform of stamp duty as at present it keeps owners in homes they don’t need or want, reduces choice and inflates the cost of those wanting to buy or rent, to say nothing of the negative impact on job and social mobility. 

'This unpopular tax could be replaced with a fairer distribution of council tax which is currently based on values which are over 30 years old, particularly on higher-end homes.'

How to find a new mortgage

Borrowers who need a mortgage because their current fixed rate deal is ending, or they are buying a home, should explore their options as soon as possible.

What if I need to remortgage? 

Borrowers should compare rates, speak to a mortgage broker and be prepared to act.

Homeowners can lock in to a new deal six to nine months in advance, often with no obligation to take it.

Most mortgage deals allow fees to be added to the loan and only be charged when it is taken out. This means borrowers can secure a rate without paying expensive arrangement fees.

Keep in mind that by doing this and not clearing the fee on completion, interest will be paid on the fee amount over the entire term of the loan, so this may not be the best option for everyone. 

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Buyers should avoid overstretching and be aware that house prices may fall, as higher mortgage rates limit people's borrowing ability and buying power.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a broker.

This is Money has a long-standing partnership with fee-free broker L&C, to provide you with fee-free expert mortgage advice.

Interested in seeing today’s best mortgage rates? Use This is Money and L&Cs best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

If you’re ready to find your next mortgage, why not use L&C’s online Mortgage Finder. It will search 1,000’s of deals from more than 90 different lenders to discover the best deal for you.

> Find your best mortgage deal with This is Money and L&C

Be aware that rates can change quickly, however, and so if you need a mortgage or want to compare rates, speak to L&C as soon as possible, so they can help you find the right mortgage for you. 

Mortgage service provided by London & Country Mortgages (L&C), which is authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage