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Joy for first time buyers – better off by up to £11,250

Savings: Homebuyers celebrate after Chancellor Kwasi Kwarteng took an ax to stamp duty in his mini-budget on Friday

Homebuyers celebrate after Chancellor Kwasi Kwarteng took an ax to stamp duty in his mini budget on Friday.

Movers will save up to £2,500 and an additional 200,000 homebuyers each year will pay no stamp duty.

As well as putting money back in buyers’ pockets, Kwarteng said he hopes the move will “support growth, build confidence and help families aspiring to own their own home.”

Here’s how it will work…

Savings: Homebuyers celebrate after Chancellor Kwasi Kwarteng took an ax to stamp duty in his mini-budget on Friday

Savings: Homebuyers celebrate after Chancellor Kwasi Kwarteng took an ax to stamp duty in his mini-budget on Friday

What will homebuyers pay now?

As of last Friday, no stamp duty is payable on the first £250,000 of a property’s price. This is a 100% increase from the previous threshold of £125,000.

The other bands remain unchanged. This means that any amount above £250,000 is taxed at 5%, until the 10% threshold reaches £925,000.

This 10% rate is payable from £925,000 to £1.5 million, and anything above this rate is subject to 12% stamp duty.

The reductions mean that someone who buys a house costing the UK average of £290,000 will therefore see their bill reduced by £4,500 to £2,000.

Chancellors have announced so-called stamp duty holidays in the past – time-limited reductions to stimulate the economy and support the housing market. The most recent was announced by former Chancellor Rishi Sunak during the pandemic. But this change is permanent.

What about first-time buyers?

First-time buyers already had an added benefit, which meant they didn’t pay stamp duty on the first £300,000 of their home. This amount has been increased to £425,000.

Additionally, the value of property on which first-time buyers can claim relief has been increased from £500,000 to £625,000. This means they could save up to £11,250 from the changes.

First-time buyers in the more expensive parts of the country like London and the South East will inevitably benefit the most.

When do the changes take effect?

Anyone who finalized a property purchase after Friday’s announcement will benefit from the reduced rates.

Buyers have 14 days from the date they complete a purchase to file a return with Revenue & Customs and pay any stamp duty due.

Do they affect the whole of the UK?

No, they only affect buyers in England and Northern Ireland.

Scotland and Wales have their own property taxes. Land Transaction Tax (LTT) replaced stamp duty in Wales in 2018. It applies to properties worth more than £180,000.

In Scotland buyers pay Land and Property Transactions Tax (LBTT) and it applies to properties costing over £145,000 – or over £175,000 for first-time buyers. The Scottish Government said last week that it would draw up plans on LBTT “as part of the normal budgetary process”.

Will homeowners also benefit from the cuts?

Homeowners – and anyone buying a second home – will still have to pay an additional stamp duty surcharge of 3 percentage points on property purchases.

But they will still benefit from the increase in the threshold above which stamp duty is payable. From Friday they will pay tax of 3% on the first £250,000, 8% between £250,001 and £925,000, and so on.

What will this mean for house prices?

The stamp duty reduction is expected to increase activity in the housing market, as it puts home ownership within reach of more first-time buyers.

Some experts have warned that the move could push property prices even higher.

Pete Mugleston, Managing Director of OnlineMortgageAdvisor, said: “These measures will make it easier to access the property ladder, increasing mortgage options for many people.

“That being said, this is a relatively short-term solution to the current problems in the housing market.

“The risk is that these measures could worsen inflation and drive up property prices even further, making it more difficult for first-time buyers to buy a property in the long term.”

In the past, stamp duty holidays have warmed the real estate market and contributed to higher prices. The one introduced by Rishi Sunak in 2020 when he was Chancellor helped push prices up by 8.5% on average – the biggest increase in a few years.

Reaction to Friday’s cut will likely be different as it is permanent with no deadline by which buyers are scrambling to complete.

The boost from the stamp duty reduction will be weighed against a number of other factors working against the property market.

Mortgage rates are rising, leading to lower affordability. Prices have risen at a rate that many consider unsustainable.

The average house rose in value by £39,160 – or 15.5% – in the last year to £292,118, according to the Land Registry. Along with the stamp duty announcement on Friday, the Chancellor pledged to speed up construction of new homes, which should help make housing more affordable by increasing supply.

He said later this fall the government would set out a plan to “unlock home ownership for a new generation by building more homes in the places where people want to live and work”.

This will include the sale of excess state-owned land.

What buyers are saying about the fit

“We were hoping it would be more generous”

Owen Williams, 41, is a payroll supervisor and lives in Surrey with his wife and two children. The family is moving because it has outgrown their house.

“Our three-bedroom house just isn’t big enough for us – I can barely fit into the third bedroom,” says Owen. The family are buying a five-bedroom house they fell in love with in south London for £850,000.

“It’s the worst house on the best street, but we’re planning quite a bit of work,” says Owen.

“We were hoping the stamp duty reduction would have been more generous as we are only saving £2,500. If we had saved more than that, we would certainly have spent it on renovations, which will now have to wait until at least next year.

“The tax reduction allows me to invest more in my business”

Boost: Nicola Wordsworth will invest the savings in her dog shampoo business

Boost: Nicola Wordsworth will invest the savings in her dog shampoo business

Nicola Wordsworth, 55, was delighted to learn that the stamp duty threshold had been lifted. She is selling her two-bedroom flat in Hatfield, Hertfordshire, and buying a two-bedroom bungalow on the Kent coast between Margate and Whitstable.

She expected to have to pay £7,000 in stamp duty on her £340,000 purchase, but her bill was reduced to just £4,500, saving her the maximum possible £2,500 instantly .

Nicola plans to invest some of the savings in her new start-up, Pup Suds, which makes and sells handmade dog shampoos. She says, “It will be a huge help. I’m moving to Kent to save money and the reduction in stamp duty will help immensely, although it would have been nice if it had been removed completely.

“But it’s a big sum of money so I’m very happy.”

“I hope the reduction in stamp duty will stimulate the market”

First buyer Kieran Milton, 31, a pathology manager for the NHS, has just won an offer on a two-bedroom flat in Winchester, where he is renting.

Kieran buys a £290,000 flat with style mortgage lender Help To Buy Even, who has paid two-thirds of his down payment. He had already found somewhere below the stamp duty limit, but hopes he will benefit from the long-term boost the reduction creates in the property market.

“I hope to add value to the place I buy myself because there is a lot of work to be done. But raising the stamp duty threshold will help even more,” he says.

“I’m still paying £25,600 in stamp duty”

Lee Hamilton, 40, is moving with his wife and daughter from Worthing to another house just along the west Sussex coast.

Lee, who works in quality assurance, and his family are to complete the three-bedroom family home near the seafront. The tax cut will save them £2,500.

Lee says, “The economy is a welcome bonus that we didn’t expect, which we’ll probably spend on a washing machine and a lawn mower.

“It’s not going to help much with living costs.

“We’re still going to have to pay £25,600 in stamp duty, which is money that we would have put back into the economy by renovating the property.”

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