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Back to basics – changes to stamp duty and what it means for first time buyers

Written by Ipswich Building Society

22 Nov 2017


First time buyers, Stamp duty

4 min read

In the recent budget announcement, Chancellor Philip Hammond revealed that stamp duty will be abolished immediately for first-time buyers purchasing a home of up to £300,000 in value. This change means that if you’re trying to make your first step onto the property ladder, the process might just become a little bit easier for you.

Firstly, you might be wondering what on earth stamp duty is!
Stamp duty is a type of tax that is paid on all residential properties with a value of more than £125,000. Prior to the budget. the rate started at 2% and increased in line with the value of the property being bought. Over the years, there have been a number of changes to these brackets and thresholds.

What changes have been made to stamp duty now and why?
Citing a fall in the number of 25- to 34-year-olds owning a home from 59% to 38% over the past 13 years, the Chancellor said he wanted ‘to take action to help young people who are saving to own a home’, addressing the challenge for first time buyers of finding the ‘cash required up front’. His decision means that for properties costing up to £500k, no stamp duty will be paid on the first £300k and there will be a significant reduction for those who are buying a property in the £300k-£500k bracket. The chancellor expects this will lead to 95% of first time buyers seeing a stamp duty cut, while 80% will pay no stamp duty at all. The table below outlines these figures in relation to the changes.

Property priceStamp duty before
Hammond’s budget
Stamp duty now
Less than £125,000 (England and Northern Ireland)£0£0
Less than £145,000 (Scotland)£0£0
Less than £150,000 (Wales)£0£0
£200,000 (England, Wales, Northern Ireland)£1,500£0
More than £500,000No changeNo change

(Stats via BBC)

How will the changes to stamp duty benefit first time buyers?
This policy update forms part of a package of measures designed to help younger first time buyers to access the housing market. The government says the move will help around a million first time buyers over the coming five years, with the average first time buyer saving approximately £1,660 on the price of their property.

First time buyers have always been challenged by saving for the deposit on their first property, but the stamp duty changes could potentially alleviate some of this pressure: most mortgage products require a borrower to put down a minimum deposit of around 5% -10% of the purchase price. If you are struggling to save for a deposit, then being able to spend the £5,000 that you had earmarked for stamp duty on your deposit instead, for example, could help bring that dream of owning your first home to life a little sooner than first thought. The knock on effect of which could be that a larger deposit may mean that you are able to borrow more, which could mean you are able to buy a property that you may not have been able to previously. Alternatively, of course, you may choose to use those earmarked funds as an additional deposit towards your purchase, borrowing less money and benefiting from lower monthly repayments.

If I’m a first time buyer, but I’m buying with someone who isn’t, will I pay stamp duty?
First time buyer means exactly that – someone who is buying a property for the first time. If you have owned a property previously you would not qualify for the new rates. In a joint purchase, all parties need to be first time buyers.

This article was published under our previous name of Ipswich Building Society. We changed our name in 2021 – find out more.

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