Why the New Stamp Duty Rules Are Great For Borrowers
On Thursday 4th December, the new Stamp Duty rules were announced and there has already been a lot said on the topic. Some have chosen to focus on the political strategy employed by George Osbourne, whilst others have looked at the 2% of buyers who won’t welcome the new rules. For me, my first thought was that, by saving on stamp duty, the amount buyers can afford to spend on a property will increase by up to ten times that saving! For those buying with a mortgage where the deposit at their disposal was a limiting factor, their budget will now have increased dramatically. We do have to assume that affordability is not an issue – and it’s a big assumption. In the aftermath of the credit crunch, the amount lenders are prepared to lend, in relation to the borrowers incomes and outgoings, has dropped significantly, so these new rules will have a reduced effect on people looking to borrow as much as their lender will let them. Buyers wanting to secure a property between £125,000 and £300,000 with a 10% deposit will be among the most positively affected by these new regulations. They give a huge boost to buyers in these circumstances, as can be seen from the following examples.
- A buyer has £30,000 available to buy a home. Under the old rules, a home valued at £250,000 would cost £2,500 in stamp duty, and anything over would be up to £7,500. The higher figure would leave them only £22,500 for the deposit and therefore a maximum property value of £225,000; their maximum budget will be £250,000. Under the new rules, however, they could go up to £265,000, with a stamp duty bill of £3,250, and so the deposit of £26,750 would still be sufficient at 10%. The £4,750 saving in stamp duty would allow them to spend an extra £15,000 on their new home.
- Someone with £15,000 to spend may look at stamp duty bill of £1,500 and see it reducing their maximum property value down to around £135,000. Under the new rules, that bill would only be £500 and therefore the deposit would be increased to £14,500, increasing the maximum property value to £145,000. The saving of £1,000 would result in a ten times increase in what could be spent on the property.
The really rewarding aspect of these new rules is that affordability is unlikely to be the biggest factor for people buying homes at the £125,000 mark. Average incomes of around £35,000 per annum per household mean that borrowing £100,000 to £125,000 will not be unreasonable, yet saving £15,000 for a deposit is no mean feat, and may have taken a significant amount of time and a certain level of discipline. Buyers thinking they have months of extra saving ahead of them may all of a sudden find the home they want is well within reach. Such simple and immediate changes to the strain of stamp duty regulations are definitely something to be applauded. I don’t think many will care too much about the increased bills for those buying homes for £1m or more, just like we don’t tend feel bad for those earning £150,000 or more a year paying 45% tax rates! These recent changes in Stamp Duty will start work on removing the wall that buyers face at £125,000 and £250,000 thresholds and I believe that they should be welcomed by buyers and vendors alike. Personally, I cannot see any downsides to the new rules and I hope to see the positive effects in action very shortly.