THE NEW STAMP DUTY
The Chancellor has announced an overhaul of stamp duty land tax – the tax on house purchases.
Instead of paying the tax on the whole of the property’s price, buyers will now pay only on the chunk of their home’s value that falls into each bracket.
Previously, on the sale of any home worth between £125,000 and £250,000, buyers paid 1 per cent of the entire property value.
Those who bought properties worth between £250,001 and £500,000 paid 3 per cent of the entire property value.
The tax was 4 per cent on homes worth £500,001 to £1million; 5 per cent on homes between £1,000,001 and £2million; and 7 per cent above this.
The crucial point is that the tax was paid on the entire value of the property, which created a cliff-edge at the point where one band ended and the next band started. So at £250,000, a buyer would pay £2,500, but on a house worth £250,100, they would pay £7,503.
Under the new system, 98 per cent of buyers will pay the same stamp duty or less than under the old system.
As before, there will be no tax on homes up to £125,000. Between £125,001 and £250,000, the tax is now 2 per cent. For any part of the price between £250,001 and £925,000, it is 5 per cent, and from there to £1.5million, the rate is 10 per cent, rising to 12 per cent for homes worth more than £1.5million.
Anyone buying a house worth more than £937,000 now pays more tax.
And the buyer of a home worth £275,000 — the average price now paid, according to the Treasury — will now pay stamp duty of only £3,750, a £4,500 saving.
HOW DO I CALCULATE THE NEW STAMP DUTY?
If you bought a house worth £150,000, you would pay no tax on the first £125,000. The final £25,000 would be taxed at 2 per cent, taking the total bill to £500. Under the old system, you’d have paid 1 per cent on the entire £150,000 — so, £1,500.
On a house worth £500,000, you’d still pay nothing on the first £125,000.
Between £125,000 to £250,000 (so, £125,000), you’d pay 2 per cent — that’s £2,500.
Then, you’d pay 5 per cent on the value up to £500,000, so £250,000 worth — that’s £12,500. This gives you a total bill of £15,000. That’s exactly the same as under the old system, where you’d have paid 3 per cent on the whole amount.
If you could afford a £1million home, you’d pay nothing on the first £125,000, then 2 per cent on the next £125,000 (as before), and then 5 per cent on the bit between £250,001 and £925,000 — that’s £33,749.
Finally, you’d pay 10 per cent on the last £75,000, which is £7,500 more. This gives you a total bill of £43,749 — some £3,749 more than under the old regime, where you’d have paid 4 per cent on the whole lot.
WHAT IS THE SWEET SPOT?
The changes in stamp duty mean that the cliff-edge between different bands has gone.
Previously, around 30 times more homes were sold between £245,000 and £250,000 than between £250,000 and £255,000.
And there are half as many transactions between £125,001 and £130,000, compared to between £120,001 and £125,000.
This creates odd price distortions. Sellers with homes that should have been worth between £251,000 and £275,000 usually had to resign themselves to only getting £250,000 for their property. This is because the buyer would usually baulk at the giant rise in duty to be paid.
The stamp duty shake-up already looks to have ended this quirk. Property experts now believe there will be a boom in sales of homes between £250,000 and £280,000 — which is roughly where the national average house price currently sits.
Suddenly, buyers aren’t restricted to £250,000. Estate agents say their phones have been ringing off the hook since the shake-up was announced, with queries from buyers and sellers about properties in this range. According to property website Rightmove, which covers 90 pc of homes on the market in the UK, there are currently 37,500 homes for sale in the sweet spot territory: between £240,000 and £280,000.
Bidding for some homes in this section is expected to be fierce.
In the village of Ousby, in Cumbria, a four-bedroom converted Methodist chapel with a woodburning stove and stunning views is on sale for £275,000 — previously, if the home went for this price, buyers would have had to fork out £8,250 stamp duty — now, they would pay just £3,750.
Another home that falls plum in this stamp duty sweet spot is the three-bedroom thatched cottage above in the picturesque village of Kingscott, in Devon, that’s believed to date back to the 1700s. It is on for £249,950.
Under the old system, buyers would have been reluctant to pay more than £250,000 for this house, knowing it would cost them £5,000 in extra stamp duty if they paid a penny more. Now, there is no such artificial cap.
A luxurious, two-bedroom house in Whitlingham Hall, a converted stately home near Norwich, is on sale for £269,995. At this price, it would have had a stamp duty bill of £8,099 — now, it’s £3,499.
And in South London, a smart, second-floor one-bedroom flat close to Streatham Common is on the market for £275,000.
It’s ideal for first-time buyers. Early last week, they would have had to scrape together an £8,250 stamp duty bill.
Such a hefty amount would mean, for many, buying the property would have been an impossible dream, without turning to the Bank of Mum and Dad. Now, the amount of tax a buyer would have to find has been slashed to £3,750.
But you need to be quick. Official forecasts predict that prices are likely to keep climbing, with experts suggesting increases will be most likely around the £250,000 mark.
Figures from the Office for Budget Responsibility released last week predict prices are likely to rise by 30 per cent over the next five years.
Lawrence Hall, a spokesman for property website Zoopla, says: ‘The property market is now rid of the “dead zones” that previously existed around each stamp duty band.
‘The reforms have injected feel-good factor into the buying side of the market, but we will have to wait some months before seeing their true effect
MY HOME IN ON AT £250K — CAN I ASK FOR MORE?
The stamp duty changes have snatched a key bargaining tool from buyers.
Previously, purchasers could barter down the cost of a property on the grounds that they simply couldn’t afford the extra stamp duty, as it would come directly from their pockets.
Now, the power is back in the hands of sellers, who know there is no artificial limit to what a buyer would pay.
Get some realistic advice from your estate agent. Is your house on the market at £250,000 because it is really only worth £240,000 and you picked a price as close as possible to the old threshold limit?
Or was it on at £250,000 because your agent knew that no one in their right mind would bid £260,000 because of the stamp duty? If it’s the latter, you probably have a case to hope for a better price.
Some estate agents may encourage you to play dirty. Some have been trying to hike the price of their property after a deal has been completed, knowing the stamp duty shake-up means the buyer has more money in their pocket.
For example, suddenly asking for £5,000 more on a house worth £250,000 because they know the buyer is now saving that on stamp duty.
While this can work for some brazen sellers, especially those who have received a number of offers, anyone tempted to try this should be cautious.
If the buyer is forced to pull out of a deal, it could lead to a long delay, or finding a new buyer altogether.
And, once you find one, it will probably take more than two months to complete — and that’s assuming the other buyer is not stuck in a chain.
That’s a long wait if you’re desperate to move and need to find someone new to move in.
If you don’t need to sell right now, you could consider taking your home off the market and putting it back on in the spring, in the hope of a higher price.
Typically, there are more sales around that time of year.
Obviously, though, there is no guarantee that someone will be willing to pay your asking price.
Mark Hayward, managing director of trade body the National Association of Estate Agents, says: ‘Always speak to your agent about whether they think the value of your home has actually been held back by the previous stamp duty rules. Just because you think it’s worth more, it doesn’t mean it actually is.’
I’M A BUYER — HOW CAN I NEGOTIATE?
Buyers may have lost a key bargaining chip, now that the artificial cap on prices has been removed.
But this is an opportunity to haggle a bit more for houses that were seemingly stuck at £250,000.
This is particularly the case if you are in a bidding war and you and other buyers are all at one price.
Be warned, though. If you are close to completing a deal and the seller jacks up their asking price by a few thousand pounds at the last moment, you may have little room for manoeuvre.
It’s likely to be a game of nerves, and you need to figure out if they want to sell more than you want to buy.
Remember, there are some things you can still negotiate on other than price. Speed and ease are key factors, particularly at this time of year, when sellers will be desperate to complete a deal before Christmas.
If you have a mortgage already in place and a buyer lined up for your current property, stress that you are able to move now.
In most parts of the country outside of London, finding a new buyer still takes time.
And tough mortgage rules mean it will take a long time for another buyer to get a loan in place. Your seller should know this, and so is unlikely to want to start from scratch.
Having a good solicitor who is able to do some negotiation on your behalf if things go wrong will also help.
If you think that a seller might pull a trick like hiking their price, do some research first.
Call around local estate agents and get a feel for what’s happening with similar sales. Are homes like the one you want to buy really selling like hot cakes?
WHAT IF I NEED TO BORROW MORE?
It may be that you are willing to pay a little more to get that dream house — but whether your bank is is another matter. It will decide this during an official valuation and will not want to hand out loans for an overvalued property.
And there is the issue of how much you can borrow. For first-time buyers, getting a bigger loan is going to be very problematic. But for those moving up the ladder, particularly if you have plenty of equity, banks can still be a little more flexible.
You will have to pass an affordability test. And that means passing their so-called stress test — so you may be able to afford the repayments at the current rate, but some banks are checking you could cope if rates were 7 per cent or 8 per cent.
If it won’t lend more, you will either have to negotiate with the seller, or find the money yourself from savings.
WHAT WILL HAPPEN TO THE MARKET?
Probably not a lot. Stamp duty bills for the top end of the market have soared — for example, by £163,750 on a £5million home.
While this seems a lot for most of us, these kinds of sums are not so eye-watering for multi-millionaires and billionaires.
It’s all about perspective — so what seems a staggering amount for you is a drop in the ocean for some of the super-rich jet-set.
That’s not to say some buyers won’t be deterred, and estate agents say there could be a basement boom, with some buyers prepared to invest in renovations and extra floors, rather than moving.
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