With the stamp duty reduction set to end on the 31 March 2021, time is running out for house buyers looking to benefit from the reduction.
Under normal circumstances, buying a house can be a six to eight-week process , but a combination of an influx of buyers into the market, along with a backlog of applications caused by the spring lockdown, has resulted in many buyers waiting longer than normal for their house purchase to complete. This means that some house buyers starting the process today may not be able to complete in time to benefit from the stamp duty reduction.
The stamp duty reduction could result in some house buyers saving £15,000 on their purchase, but the amount saved will depend on the price of the property being bought and in which UK nation. Under the temporary stamp duty reduction, all properties valued up to £500,000 in England and Northern Ireland will not have to pay stamp duty. For those looking to buy in Wales and Scotland, stamp duty does not have to be paid on properties valued at a maximum of £250,000.
The Office for National Statistics (ONS) revealed that during September, the average UK house price stood at £245,000, which means that the majority of consumers buying houses in the UK up until the 31 March 2020 will not have to pay stamp duty. In all four UK nations the average house price fall below the stamp duty threshold, with the average price in England standing at £262,000, Northern Ireland at £143,000, Wales at £171,000 and Scotland at £162,000. Meanwhile, the average house price in London was £496,000, which is still below the £500,000 stamp duty threshold.
When the stamp duty holiday ends, the stamp duty threshold will be lowed to £125,000. This means that house buyers, with the exception of first-time buyers who do not have to pay stamp duty on properties valued up to £300,000 or £500,000 in London, will have to pay stamp duty of 2% on properties valued between £125,000 and £250,000. The amount increases depending on the value of the property, which is outlined in the table below.
Buyers should be aware that no matter what the value of the property, the first £125,000 remains tax-free, and the tax is only added to the portion of the property value in the higher rate. For example, for a house costing £500,000, buyers will not pay stamp duty on the first £125,000, but will pay 2% on the next portion up to £250,000, and then 5% on the remaining portion. So, a house valued at £500,000 bought by a home mover after the stamp duty ends would pay £11,250 in stamp duty – this tax would not be payable if they make the purchase before the stamp duty reduction ends on the 31 March 2021.
|Stamp duty rates from 1 April 2021|
|Property or lease premium or transfer value||SDLT rate|
|Up to £125,000||0%|
|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 majority of those looking to move and benefit from the stamp duty reduction will need to apply for a mortgage to buy the new home.
Depending on the buyer’s individual circumstances, the mortgage application process during normal times can take from 18 to 40 days. At the moment, however, applications can take longer as lenders deal with a backlog of applications caused by the spring lockdown, as well as more people making applications to move before the stamp duty reduction ends. This not only holds up the mortgage lender, but mortgage brokers and surveyors have also seen their workloads increase.
There are, fortunately, some things buyers can do to speed up their mortgage application.
The mortgage process can be complicated, especially if the applicant has circumstances that could make the mortgage lender cautious, such as being self-employed, which can slow down the application and require more paperwork. Using a mortgage broker, who will not only be able to provide advice about the best mortgage options available, but who will also be able to make the application, will help to speed up the process.
Those applying for a mortgage may find their applicant rejected if they have a poor credit score. To help tailor the application to the lenders most likely to accept it, applicants should check their credit score, which they can do for free on our credit check page, before making an application. Tips on how to improve credit scores can be found in our how to improve your credit score guide.
As well as this, mortgage applicants should ensure that they are signed up to the electoral roll, which is free to do, as lenders normally check this as proof of identity. Along with this, making sure other types of identifications, such as driving licences, are correct will help to make the application quicker.
When reviewing applications, mortgage lenders want to ensure that the mortgage is affordable and that the borrower can comfortably make repayments. This is why applicants will need to supply at least three months’ worth of bank statements, which will provide proof of income and give the lender an idea of how much the borrower can afford to make in repayments. Those wanting an idea of how much they will be able to borrow should use our how much can I borrow mortgage calculator.
Those with an existing mortgage should be aware that if they are currently locked into a mortgage deal, they may have to pay a fee to exit the deal, but some lenders do allow mortgages to be transferred to the new property. Those in this situation should speak to their mortgage lender or a mortgage broker to discuss their options.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.