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Stamp duty changes could benefit 71% of buyers

Stamp duty changes could benefit 71% of buyers

Category: Mortgages

Updated: 24/02/2015
First Published: 24/02/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Have you heard about the stamp duty reforms? If not, it's time to familiarise yourself with them, because they could mean you'll save thousands when buying your next home – and research suggests that 71% of homebuyers could benefit.

What do the changes mean?

The changes, announced in the latest Autumn Statement, effectively bring an end to the 'cliff edge' arrangement of stamp duty land tax (SDLT). The previous system meant that if the value of your home hit a certain threshold, you'd pay a higher rate of tax on the full value of the property, and not just on the portion above the limit.

Happily, that's been changed to an arrangement that's far more proportionate, with the time of cliff edges coming to an end – from now on, you'll only pay the higher rate of tax on the amount that's above the limit, and not on the full value of the property. In a nutshell, the stamp duty rates are as follows:

Purchase price of property Rate of SDLT
£0 - £125,000 0%
£125,001 - £250,000 2%
£250,001 - £925,000 5%
£925,001 - £1.5m 10%
Over £1.5m 12%

Remember, you only pay the higher rate on the amount above the threshold, so if you buy a property worth £251,000 (for example), you'll only pay 5% tax on the £1,000 above the limit. A further £125,000 will be charged at 2%, and the remaining £125,000 will incur no interest whatsoever. You can find out more about the changes and how much you could save here.

Could I really benefit?

Yes, you really could! According to research from Nationwide, the changes mean that 98% of homebuyers will pay the same or less tax, with around two-thirds standing to actively benefit.

The figures, based on official housing transactions from 2013/14, show that nearly 590,000 purchasers in England & Wales – or 71% of all transactions – could actually pay less, with an average saving of £1,600 each. The greatest impact is likely to be for homeowners looking to buy property just above the £250,000 mark, who could save around £5,000 in tax.

Perhaps unsurprisingly, the benefits could be even greater in areas where average house prices are higher, given that a higher proportion of transactions in these areas are liable for stamp duty. It's therefore estimated that 86% of transactions in London and the South East could benefit from the changes, compared with around 50% across the North East, North West, and Yorkshire and The Humber.

Only a very small proportion of purchasers will pay more stamp duty under the new system, with the majority of these (8,400) set to be in London. Even then it's only likely to be on those properties costing between £937,500 and £1m or those that are worth more than £1.125m, so a clear majority stand to benefit.

Falling cost of borrowing

So, are you thinking about getting on (or moving up) the property ladder? It could be a great time to consider it, with the typical costs associated with buying that must-have property falling for many would-be buyers. That's not the only benefit you've got at the moment, either – thanks to record low mortgage rates and ever-falling fees, the cost of having a mortgage is also reducing!

Figures from Moneyfacts show that the average two-year fixed rate mortgage is now priced at 3.14%, while the variable equivalent has a rate of just 2.11%, both of which are at fresh lows following drops of 0.05% in a single month. Average fees have also fallen, with the average fee for a variable rate mortgage now standing at £727 (down from £739 the previous month), while the average fixed fee has fallen from £697 to £687.

This low rate/low fee combination means that the cost of a mortgage is genuinely reducing, with borrowers of all kinds able to reap the rewards and get their mortgage for less. Add to that the reduced stamp duty charges, and the cost of owning your own home really is reducing – so why not get in on the action? Check out our best buys to see how much you could save.

What next?

Try our mortgage calculator

Disclaimer: 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.