Getting onto the Property Ladder and what the Stamp Duty Holiday means

Jul 24, 2020 by Ross Jefferies

The last time I wrote about what you can do to sort your finances out it was early May. What I wanted to avoid is filling up inboxes with a lot of the same stuff that everyone had to say about life as lockdown began to stretch into months.

I am not sure whether time has gone slowly or if it has moved too quickly given the similarities between the days since that point. Whilst some elements of life have slowed down, the recent Summer Statement has thrown out various significant areas for consideration, and quite possibly, action.

Just before the Summer Statement, I wrote a piece on behalf of Gold Property Developments which had I known about the Stamp Duty Holiday, I may have delayed it. However, what does not change about buying a property is the sentiment of why you are buying it.

Should you see a property as an investment?

If the sole purpose is to buy a property to rent out or carry out renovations and sell it, then obviously, the idea is to create a financial return over what it cost you.

When you are buying a property to live in it, you should not see it as an investment but as a home to make memories, have friends round and seeing it as your home for the future. Yes, the value may go up over time and historically, house prices have increased significantly but if you buy a property for the right reasons, it does not matter. It is a home not an investment.

What has changed with the Stamp Duty Holiday?

Stamp Duty Land Tax (SDLT) is the tax paid when purchasing a property over a certain value which also differs depending on the buyer’s circumstances. Since the Summer Statement, many buyers will now save thousands of pounds.

Previous Rules:

Property Value

SDLT %

Maximum SDLT Payable at each level

Up to £125,000

0%

£0

£125,001 - £250,000

2%

£2,500

£250,001 - £925,000

5%

£33,750

£925,001 - £1,500,000

10%

£57,500

£1,500,000 +

12%

Unlimited

First Time Buyers:

  • No SDLT on purchases up to £300,000.
  • Between £300,000 - £500,000 = 5% = Maximum of £10,000.
  • Above £500,000 and it was standard terms that applied.

New Rules from 8th July 2020 until 31 March 2021:

Property Value

SDLT %

Maximum SDLT Payable at each level

Up to £500,000

0%

£0

£500,001 - £925,000

5%

£21,250

£925,001 - £1,500,000

10%

£57,500 (+£21,250)

£1,500,001 +

12%

Unlimited

What that means:

Buyer Type

Purchase Price

Pre 8th July 2020 SDLT

SDLT Holiday

First Time Buyer

£300,000

£0.00

£0.00

First Time Buyer

£500,000

£10,000.00

£0.00

First Time Buyer

£501,000

£15,000.00

£0.05

Home Mover

£300,000

£5,000.00

£0.00

Home Mover

£500,000

£15,000.00

£0.00

Home Mover

£750,000

£27,500.00

£12,500.00

Home Mover

£1,000,000

£43,750.00

£28,750.00

Getting onto the Property Ladder

Currently, mortgage lenders are being understandably cautious. Many have spent 2020 withdrawing 90%/95% mortgages, which makes getting on to the property ladder particularly difficult. Often this means the deposit required needs to be at a minimum 10%. Outside of Help to Buy Schemes, there are, however, ways of getting your first property although do require a helping hand from The Bank of Mum and Dad (BOMAD is the UK’s 11th largest lender) or to be employed in certain sectors.

  • Joint Borrower Sole Proprietor (JBSP): Those moving into the property along with a supporting family member borrow the loan but only those moving into the property are put on the property deed. This allows for all incomes to be combined to aid affordability at the same time as avoiding a 3% SDLT surcharge on the supporting borrower for owning a 2nd property.
  • Family Springboard: The borrower does not require a deposit but instead 10% of the purchase price in the form of a family member’s savings is put away with the lender as security and earns interest for the agreed term.
  • Young Professional: There are some professions that are afforded a higher income multiple when applying for a mortgage although it is subject to affordability. Rather than 4.5x a salary to figure how much you can borrow, some lenders offer 5.5x with a handful stretching to 6x. What is so good about this, is that if it is a joint application, both incomes are multiplied by 6. The logic behind it is that the lender expects earnings to increase more significantly than some other professions. Those that may be considered for up to 6x are Accountants, Actuaries, Barristers, Dentists, Medical doctors, Pharmacist, Solicitors and Pilots. Engineers, Vets and Optometrists have a ceiling of 5.5x.
  • Heroes: Armed Forces, Firefighters, Police Officers, NHS Nurses and Paramedics along with Teachers are heroes and are recognised as such by some lenders. With this in mind, those in these professions can borrow up to 5x salary.
  • Buying Together: Where up to 4 friends who want to buy together rather than continue renting. This way, all 4 incomes can be combined to purchase a property.

There are limitations on age and earnings on both the Young professional and Hero range.

Example of Young Professionals Mortgage:

Applicant A and B do not qualify for a Young Professional Mortgage.

A earns £35,000 and B earns £30,000 with joint income of £65,000. Traditionally, this is multiplied by 4.5 times = £292,500.

Applicant C qualifies for a Young Professional Mortgage but D does not.

C earns £35,000 and D earns £30,000 with joint income of £65,000. As they qualify for a Young Professional Mortgage this is multiplied by 6 = £390,000.

This is a difference of £97,500 based on these numbers.

If you would like further information on any of the above or would like to discuss your options; please do not hesitate to contact me.

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