Why the end of the stamp duty holiday is positive for first-time buyers

The stamp duty holiday that has helped buyers save money when buying a home ended on 30 June. Here’s why this could be positive for first-time buyers.

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A year after it was first introduced by the government as part of its coronavirus economic recovery package, the stamp duty holiday finally came to an end on 30 June.

Analysts are still waiting to see how the end of the stamp duty holiday will affect the overall housing market. However, some believe that it will be positive for first-time buyers. But how exactly? Let’s take a look.


What is the stamp duty holiday?

The stamp duty holiday was introduced to boost a housing market brought to a halt by lockdown.

Under the scheme, buyers did not have to pay stamp duty on the first £500,000 of the purchase price of a property in England or Northern Ireland. As a result, buyers could save as much as £15,000 in stamp duty when buying a home.

How is stamp duty changing from 1 July?

The stamp duty holiday officially came to an end on 30 June. However, to smooth the transition back to the original rates, it is being tapered until the end of September.

From 1 July to 30 September, the stamp duty threshold will be reduced to £250,000. From 1 October, rates will return to normal and the stamp duty threshold will return to £125,000.

If you are planning to buy a home, you can use the Stamp Duty Calculator to find out how much stamp duty you may have to pay.


What does the end of the stamp duty holiday mean for first-time buyers?

First-time buyers in England and Northern Ireland could already access stamp duty relief.

Even before the stamp duty holiday, they were exempt from paying stamp duty on properties worth up to £300,000. So, unless they are buying homes in more expensive areas, many already don’t pay stamp duty.

Consequently, it may appear that first-time buyers may not necessarily make any tax savings once the threshold is reduced to £250,000 and then later to £125,000.

However, some experts believe that the end of the stamp duty holiday might actually give first-time buyers their competitive edge back.

According to the Evening Standard, the stamp duty holiday has incentivised buyers at all levels to move. This includes second and third steppers looking to upsize their family homes and buy-to-let investors. As a result, the market has become extremely competitive and house prices have skyrocketed.

However, from 1 October, only first-time buyers will get stamp duty relief on properties worth less than £300,000. Therefore, there is likely to be less competition from buy-to-let investors and other kinds of buyers. More first-time buyers could therefore be in line to realise their homeownership dreams.

What other help is available for first-time buyers?

Apart from the competitive edge that the end of the stamp duty holiday might give first-time buyers, there is other help available.

Buyers can now obtain a mortgage from a lender with as little as a 5% deposit under a new government mortgage guarantee scheme. The scheme, which is designed to help more first-time buyers get on the property ladder, is available on properties worth up to £600,000.

First-time buyers in England can also apply for the Help to Buy: Equity Scheme. Under this scheme, buyers get an equity loan worth up to 20% (or up to 40% in London) of a property’s value to add to their deposit. However, buyers still need to raise a deposit of at least 5%.

Another useful tool is the Lifetime ISA. This is a product through which aspiring homeowners can save £4,000 each year and enjoy a 25% free top-up from the government to use towards the purchase of their first home.

If you are a first-time buyer, taking advantage of any of these tools may reduce the amount of time you have to save to afford your first home.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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