Stamp Duty Reforms on buying a property

Changes to Stamp Duty

Following the not so popular, 'Mansion Tax' whereby homes that were valued at over £2m would face an annual charge, the Government has decided to change direction and reform the way duty is added.
It would seem that many people who had lived in their homes for a large amount of years would be charged an additional tax due to the natural increase in value.  All properties that were valued at over £2m would be charged upwards of £10,000 per year.  This caused concern to many of retired people who may have owned a valuable property but did not necessarily have the spare funds to pay this increase.
Government figures show there are approximately 100,000 properties in the UK that have this value to them.  Of these 80% were in London but 22% of them were only flats.

New Stamp Duty Rates

As from 3rd December, a new stamp duty structure will come into force across the UK.  Instead of the present slab structure at the current rate, stamp duty will be a more progressive tax.  This is similar to the way income tax is paid.  The figures work out thus:

• No tax is payable on the first £125,000
• Between £125,000 and £250,000 the charge will be 2%
• Between £250,000 and £925,000 the charge will be 5%
• Between £925,000 and £1,500.00 the charge will be 10%
• Over £1,500.00 the charge will be 12%

Basically, this means that those buying homes under £937.500 will pay less stamp duty while those buying above this threshold will pay more.

This form of tax will come across as a double winner for the Government as the average tax across the board is an increase should all grades decide to move.  It will also assist those on a lower pay scale to be able to afford to buy a property as the tax is at a lower rate. 

This could serve to ease progression for many more first time buyers up and down the property ladder.  This, combined with the Governments, 'Help To Buy' scheme will make it more affordable to buy a home.

Advantages on Self-Build

When it comes to Self Build properties there has been no increase in taxes and you could save thousands of pounds.  Firstly because although you pay duty on the cost of the land, it only comes into force on plots worth £125,000 and above.
There is no stamp duty on the building work or the value of the property when the works are completed.
Stamp duty is levied at 1% on property on property sales between £125,000 and £250,000, 3% for property between £250,000 and £500,000 and 4% for properties selling for more then £500,000.

This means that if you buy a plot for £155,000 and the final value of the property is £525,000, you would pay stamp duty of £1,500 (1% of the plot cost).  In contrast someone buying a property worth £525,000 would have to pay stamp duty of £21,000 (4% of £525,000). 

Shortages of properties for sale

Although the price of properties throughout the UK and USA are beginning to rise, plus there is a 50% rise in enquiries about properties, the market is still very quiet.  Hopefully the reduction in tax duty will encourage more buyers to invest in a home of their own.  Of course, the problem of a shortage of properties at the cheapest end of the market is still evident.  Hopefully this will improve in the new year!

Three Steps to Financing a Self Build

To finance your self build project, you need to make sure that you understand the differences between borrowing for a ready built home and borrowing to build.

When you finance an existing home, it's easy to estimate the value of the property and easier for lenders to work out how much risk they will be taking on when lending you money. Once you agreed a price and exchanged on an existing home, then you can go ahead with the purchase, the lender releases the money and you move in and start paying the mortgage.

With a self build, you need to borrow money in stages. For example, initially you need to buy the land, then it may be several months before you clear the plot. The next stage is the ground works for foundations and drainage and after more months waiting you finally start to see your property being built!

As a result, many lenders will not want to lend on self build projects as it requires specialist knowledge and experience and it's more work than a standard mortgage. So follow our three step guide to help you finance your property in the best possible way:-

Step One: Understand self build mortgages

Make sure you approach specialist and experienced lenders that will let you borrow money at each stage of the land purchase and build. Lending in stages often means that you can stay in your current property and carry out much of the build before you move into your newly built home as the costs of the mortgage start off with mortgage payments for the cost of the land, then a bit more for clearning the land and groundworks etc.

Step Two: Scrutinise the finance costs
Unfortunately you are likely to have to pay more for your self build mortgage, so it's important to compare costs from different lenders. For example, the lending criteria and associated costs for self build mortgages are typically:-

5% deposit for the land and build, providing that when you finish the mortgage is only 75% of the final valuation.

You can't now secure a self build mortgage on a 'self certification' basis. 

Typical fixed rates for self build mortgages are around 5-6%.

Fees for securing the mortgage range from £1,000 to 1.5% of the amount you borrow.

You are also likely to pay a little more on legals and survey fees too, so it's worth budgeting around £2,000 for these essential items.

Step Three: Find a lender that will be efficient and flexible on payments
When you are borrowing money in stages for building a new home, it's important to make sure you work with a lender that understands you need your money quickly, in advance of each stage of the build. You also need to find a flexible lender that understands you may go over budget and need to re-negotiate an increased loan during the build. It's no good working with a lender that takes months to make a decision. If they are too slow, you may lose your builder if you can't pay them or might not be able to pay for essential materials.

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