Location, location, location… will work against some first-time buyers, brokers warn
First-time buyers could face an even greater struggle to get on to the property ladder in around a third of local authorities where house prices are higher, following Chancellor Rachel Reeves’ decision not to extend stamp duty land tax (SDLT) relief.
The rethink means that first-time buyers will pay SDLT on purchases over £300,000 from next April, instead of £425,000 as it currently stands.
Leading mortgager adviser Alexander Hall has analysed current market data on the average property price paid by first-time buyers across every local authority in England.
The current average first property price sits below £300,000 in 68% of local authorities (202) in England. So, when the rules change in April next year, those purchasers will still be stamp duty-free. But, properties in 93 local authorities – or 31% of the total market – will come with an increase in SDLT.
Whilst some areas, such as Adur, Stratford-upon-Avon and Cherwell, will see SDLT increase by up to £100, this climbs to almost £6,000 in areas such as Redbridge, Cambridge and Newham.
What’s more, current SDLT relief only applies to purchases of first homes up to £625,000 and from April next year this ceiling will reduce to £500,000. At the moment, there are four local authorities in England - Hackney, Richmond, Wandsworth and Kingston - where first-time buyers benefit from a degree of stamp duty relief due to the average house price sitting between £500,000 and £625,000. As of next April, the average buyer in these London boroughs will no longer qualify for any SDLT relief, meaning the cost of stamp duty there is set to climb by £11,250.
Richard Merrett (left), managing director of Alexander Hall commented: “It was widely expected that the government would extend the current stamp duty relief threshold for first-time buyers at the very least, so many will be understandably disappointed that this wasn’t the case.”
How much more challenging will it be for first-time buyers?
For Richard Campo (pictured centre), head of growth at mortgage and insurance practice Heron Financial, the policy change means bigger challenges for those eager to own their own home.
“At a time where it is hard enough to save for a deposit for many first-time buyers without family assistance, this could well move those goalposts even further away in the short term,” he said. “SDLT and inheritance tax were intended to be taxes on the rich but increasingly they are becoming just another tax we have to pay. With tax thresholds not keeping pace with inflation over time this is just another example of the tax by stealth approach we are all going to be feeling in the coming years.”
Campo noted that leading estate agent Savills believes house prices will rise by just under 25% over the next five years. “So by the end of this Parliament, yet more first-time buyers will be paying even more SDLT,” he reasoned. “It’s no surprise that more and more first-time buyers are getting caught.”
The UK has not built enough homes, especially affordable properties, over more than 30 years, Campo suggested.
“So at least in that regard £3.1 billion being set aside for affordable homes, and £3 billion in guarantees for smaller home builders in the recent Budget will genuinely help,” he said. “Equally, the government will also need to ensure wages keep pace with house inflation or that will just exacerbate the issue. So the challenge will be, can that be achieved before we all need to vote again? It’s a big gamble.”
Read more: Is it time to scrap Stamp Duty?
What can brokers do to help first-time buyers?
Nicholas Mendes, mortgage technical manager at broker John Charcol, believes that to help first-time buyers manage the upcoming changes in SDLT relief, advisers need to be proactive and adopt a tailored approach.
“Brokers should offer location-specific guidance, helping clients understand the direct impact on their intended purchase areas,” Mendes commented. “For buyers in affected regions, where the increase may be substantial, brokers can outline the specific financial implications and work with clients to assess their overall affordability.”
Despite these changes, the mortgage market currently offers a favourable landscape for first-time buyers, Mendes observed, with several lenders introducing innovative approaches to address affordability and deposit barriers.
“With further interest rate reductions expected, brokers are well-positioned to advise first-time buyers on the full range of options available to them,” he said. “In local authorities, particularly in high-cost London boroughs, brokers can provide clear examples and explain how these changes may affect clients' monthly budgets and overall financial planning.
“Where possible, continually be in discussion with all stakeholders in the buyer’s journey, and encourage clients who are considering properties priced between £300,000 and £625,000 to expedite their purchase before the April deadline, which could save them significant SDLT expenses, especially in areas where the increase exceeds £5,000.”
