In the wake of the raising of the 1% band of Stamp Duty to £120,000 from £60,000 MAB conducted research across its network of branches to see how the changes will help first-time buyers.
Although the average purchase price for first-time buyers is £137,724 (Office of Deputy Prime Minster, April 2005), well above the £120,000 band, many areas have properties that fall beneath the cut off point. In Mansfield, where properties have been available from £50,000 and first-time buyers accounted for 77.8% of March mortgage sales, Location Estate Agents noted that the Stamp Duty changes have opened up a wider choice of nil-rate threshold homes to buyers thereby easing the additional costs.
Other areas are also popular with first-time buyers. Parkers Estate Agents in Reading recorded 60% first-time buyer mortgage sales in March. Studio properties are available from £80,000 while one bedroom flats are often available from £100-120,000. However, they commented that although the properties were exempt from Stamp Duty, they could often still only be afforded by professionals or couples, and therefore first-time buyer levels were unlikely to change.
In Romford, although the majority of properties available do not fall under the revised parameters, Hilbery Chaplin noted that several new-build properties originally priced in the mid-£120,000s have been reduced to just under the threshold to attract buyers keen to avoid Stamp Duty costs.
A number of agents commented that first-time buyers were not aware of the changes and potential benefit. Agents in Scunthorpe, Shrewsbury and Warrington remarked that clients already engaged in the buying process would receive an unexpected windfall as their property transactions were under £120,000, although these gains were unexpected at the time of purchase. However, agents in more expensive areas, such as Goodfellows in Surrey and Wilkinson Grant in Exeter, noted that typical first-time buyer properties in the area are priced above £120,000, and therefore the changes would not benefit their customers at all.
Brian Murphy, Lending Manager at Mortgage Advice Bureau, comments: “The government believes that the changes to Stamp Duty levels will save 300,000 buyers paying Stamp Duty fees of up to £1,200, and will provide a boost to first-time buyers. However, many industry experts (estate agents/mortgage brokers) are pessimistic, believing that the bottom band is still too low. There has not been any immediate increase in first-time buyer activity witnessed in response to Stamp Duty changes. Our research shows that, though raising the Stamp Duty threshold has certainly improved the situation for buyers in moderately priced areas, they are often unaware of the changes and in more expensive areas the actual cost of purchasing will still be a problem. Although incomes in pricier locations tend to be higher, first-time buyers are already stretched, and the addition of Stamp Duty fees requires careful budgeting.
“Lenders are coming up with more innovative ways to fund first-time buyers’ mortgages. As a key issue is affordability, Northern Rock offers loans of up to 4.8 times income, depending on circumstances. They will also lend up to 125% of the property value: a useful feature that can help cover fees or decorating/furnishing costs. The Bank of Ireland offers a unique guarantor product which is based around a primary assessment of the parents’ income as opposed to that of the borrower. Although the rates on these products are generally higher priced than the market best buys, they can serve as an ideal way for first-time buyers to get on to the ladder.”
