This information should not be interpreted as financial, tax or legal advice. Mortgage and loan rates are subject to change.
Category: tax
Rules surrounding Stamp Duty Land Tax (SDLT) are set to change on 1st April, causing a flurry of activity in the mortgage market.
Mortgage borrowers are being encouraged to complete their deals as fast as possible, before the deadline passes.
How we got here
Fundamentally, stamp duty is changing because of revenue – or a lack thereof.
A recent report by HM Revenue & Customs (HMRC) highlighted that SDLT has not been generating enough income for the government. Between the financial years of 2022-2023 and 2023-2024, stamp duty receipts decreased by 24%, from £15,360,000 to £11,615,000.
Currently, there are thresholds in place that limit the amount of SDLT that homebuyers and property investors have to pay on property over a certain price.
The previous Conservative government implemented these limits (with the understanding that they would be temporary) to support first-time buyers and the overall housing market.
Labour have decided not to extend these temporary thresholds, with the apparent aim of reaping more tax revenue from property purchases. First-time buyers will be particularly affected by this, as we have previously explained.
According to research by Rightmove, up to 25,000 first-time buyers are expected to miss the deadline for their completion, meaning an additional £34 million in stamp duty payments may be about to line the government’s pockets. However, it is also possible a lot of these deals may not proceed, due to the higher costs.
The goal of Labour’s overall taxation strategy has been to strengthen the UK economy. Their decision regarding SDLT thresholds comes after long periods of instability marked by high inflation, the ongoing cost of living crisis, and global politics impacting our markets.
The property market has started showing signs of stabilising. The Bank of England has taken progressive steps to bring down inflation and mortgage rates by gradually cutting the Base Rate over the course of several months.
However, earlier this year, inflation jumped up from 2.5% to 3%, showing that the economy is still fragile.
How to get ahead of the changes
The key strategy is to take advantage of the fact that current SDLT thresholds are going to be in place for the next few weeks. There is still time, albeit not much of it.
Much can be done in a few weeks, but with the deadline looming so close, it’s important to get everything in order quickly and decisively. Any transactions completed on or after 1st April will be subject to new SDLT rates with immediate effect.
If you already have a transaction in progress, make sure that everyone involved – from your mortgage broker to your conveyancer – are on the same page about getting everything through by 1st April. Please bear in mind there are no guarantees on this being possible.
If you are buying last minute, a bridging loan can be arranged in days, so you could secure your property in this way and pay of the loan with a mortgage with more time. You can begin to arrange the mortgage at the same time as the bridging loan.
It’s vital to understand how much SDLT you will be paying. To give an example of the money a private landlord can save by getting a completion sorted before the deadline:
For completion of a £300,000 purchase before the deadline, buyers of an additional property would pay 5% on the first £250,000, and 10% on the final £50,000. In this situation, the total SDLT that would be paid is £17,500.
However, on completion after this date, the buyer would pay 5% on the first £125,000, 7% on the next £125,000, and 10% on the final £50,000. In this situation, the total SDLT that would be paid is £20,000. In this scenario, the buyer saves £2,500 by completing the purchase before the deadline.
Will demand increase for high LTV mortgages?
Industry experts have commented that the upcoming stamp duty changes show the need for higher loan to value (LTV) products in the residential market.
Writing for Financial Reporter, Patrick Bamford said:
What we will need to continue however is a strong, and growing, supply of high LTV mortgage products because clearly extra stamp duty costs are going to eat into the amount of money potential first-timers can save for their deposits.
Whilst landlord property investors may not be as affected by this change as any increase in cost can be recouped in rent, Commercial Trust has access to buy to let mortgages of up to 85% loan to value.
If you are struggling to raise a 15% deposit, you can borrow against equity in other property you own, so there are flexible solutions available to you. Discuss these or any other borrowing requirement you have with our team today.
