First Time Buyers Take Hit From Stamp Duty

One of the most important purchases you'll ever make is buying your home. Over the past 10 years or so, property prices have continued on a sharp rise creating somewhat of a frenzy to "jump on the property ladder as soon as possible". Prior to August 2007, competitive mortgage deals were aplenty as lenders competed for business by offering as much as 125% mortgages, whereby one could borrow more than the asking price to potentially pay for furniture or a remodel of their first property.

However, the global credit crisis has now made it difficult for many banks to borrow cheap credit from one another. The day of borrowing 125% or even 100% mortgages are quickly becoming a thing of the past making it more difficult for first-time buyers to take that big step of owning their own home.

According to BBC News, the average stamp duty bill has almost doubled for first-time buyers since 2002. The Treasury says that half of first-time buyers will not have to pay any stamp duty tax this year. In order to qualify for no stamp duty the purchase price of a home must be valued at below £125,000.

At the moment, homes valued between £125,001 and £250,000 will require the buyer to pay a 1% stamp duty tax. Homes valued between £250,001 and £500,000 command a 3% tax and those above half a million pounds will require a 4% tax. The problem for many first-time buyers is that these thresholds have not kept pace with the increase in house price inflation over the past several years.

According to Martin Ellis, Chief Economist at Halifax, he states: "Stamp duty has again become an issue for first-time buyers because the stamp duty thresholds have not kept pace with house price inflation.

"We call on all political parties to raise the stamp duty thresholds to compensate for house price inflation over the past decade."

Although the Treasury iterated that half of first-time buyers will not have to pay Stamp Duty Land Tax this year, it is important to remember that in order to qualify for "no tax" one must purchase a home that is valued below the £125,000 threshold, otherwise expect to pay a minimum of 1%.

Published on March 10, 2008