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Stamp duty: The extra costs of buying a home

Stamp duty: The extra costs of buying a home

Category: Mortgages

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After struggling for years to save for a deposit to buy their first home, first-time buyers (FTBs) will obviously be keen to get the ball rolling. But, it seems they are not putting enough thought into other costs involved in buying a property, namely stamp duty.

According to research from TSB, nearly 25% of FTBs are not taking into account stamp duty costs when making an offer on a house.

With most FTB house purchases likely to fall into the 1% tax bracket, it is imperative this extra cost is factored in. If you take the average price of a house at £168,356, then a further £1,683 in stamp duty will need to be found on top of other fees such as solicitors, surveys and land registry searches.

It seems that established homeowners aren't much better at budgeting, with 14% of these buyers not considering stamp duty when buying their second or third home.

Some regions fare better than others, with those in the east being the most stamp duty savvy with 50% factoring it in, while those in Wales need to be more finance aware with 25% not considering it at all.

More reassuringly, 41% of FTBs are well prepared and have done their calculations, setting aside the exact amount needed to pay for stamp duty, while 45% of those buying their second or third home have also included this tax in their budgets.

The price people are willing to pay for a property can also be affected by stamp duty with 9% of homebuyers capping their bid in order to fall into the lower stamp duty bracket.

Demonstrating how times have changed, a third of current homeowners said they did not pay stamp duty when they originally purchased their home, a figure that's in stark contrast to 86% of those currently looking to buy who are expecting to pay it.

Ian Ramsden, TSB's director of mortgages, said: "With UK house prices rising, it should come as no surprise that the cost of stamp duty is on the up too. Yet, a worrying number of homebuyers are failing to factor this significant outlay into the overall cost of buying a home.

"With the expenditure on stamp duty equivalent to a tenth of the average deposit, it is important for potential homebuyers to factor it in to their purchase decision at an early stage. Before starting their house-hunt, people should talk to a qualified mortgage adviser to see what options are available to them. Buyers should kick start their search safe in the knowledge that they can afford the full costs of buying their dream home."

When considering buying a property, one of the most important issues is your credit rating, and worryingly 10% of FTBs turn to credit cards to pay stamp duty charges. Credit ratings are also important when remortgaging, something the 3% of established homeowners who also turn to the plastic need to consider.

Other ways to pay, for FTBs and established owners alike, are extensions on the mortgage amount with 21% and 27% opting for this method respectively, while 15% of FTBs turn to cash gifts from friends and family compared to just 4% of the more independent established homeowners.

Happily, many buyers have been saving for the most important purchase of their lives, with 36% of FTBs likely to use their personal savings to cover stamp duty, and 41% of those buying their second and third homes using this method.

What next?

What extra fees are involved in buying a house?

See how to improve your credit rating with our compare credit check providers

Find the best available savings account to start saving for those fees

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