How to claw back up to £2,500 lost in Stamp Duty

If you are in the process of buying your first home, it might feel something of a wrench that you have just missed the government’s Stamp Duty concession which expired on March 24. For two years up until that date, first-time buyers were able to avoid the 1% property tax on homes priced between £125,000 and £250,000, leaving them a potential £2,500 better off.

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Too late for some

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According to Halifax research, 95% of first-timers successfully avoided the tax during the two-year freeze. But, after hopes were dashed of an extension to the scheme in the recent Budget, today’s first-timers are left to foot the bill again.

One such buyer is 27-year old Sumeet Vermani, who is currently looking to purchase his first flat in London. He said: “I will probably have to find at least another £2,000 now the Stamp Duty concession has ended. This is tough, as I already need to raise a large cash deposit of between 15% and 20% to get a mortgage agreed. But I simply couldn’t beat the March 24 deadline as I wasn’t in the position to buy.”

Sumeet says he was disappointed that the Chancellor, George Osborne did not announce new incentives for first-time buyers in his recent Budget:  “Although the government has recently launched the NewBuy scheme, this only applies to new-build homes. I would like a secondhand property that I can potentially extend, alter and make my own, so I won’t be using the scheme. I am now just saving harder and hope to buy before the end of this year.”

But Sumeet, alongside the rest of the nation’s first-timers, should not lose heart – there are ways to claw back up to £2,500 lost in Stamp Duty for yourself.  We show you how.

Sumeet Vermani: Looking to buy his first home this year

Negotiate the price down

The first thing to note is that, as a first-timer, you are in a strong position when it comes to negotiating on price as the housing market is still limp. The latest house price report from Nationwide Building Society revealed that the price of a typical home declined by 1% in March – the first time growth has entered ‘negative territories’ in six months. The average house price, at £163,327, is now 0.9% lower than a year ago.

 

Robert Gardner, Nationwide’s chief economist, said: “A slowdown was to be expected, given the imminent expiry of the Stamp Duty holiday. This had provided a temporary boost to house prices in early 2012 as buyers brought forward purchases that would otherwise have taken place later in the year.”

Especially for properties priced at the higher end of the 1% Stamp Duty bracket, some tough negotiating could very feasibly shave £2,500 off the cost.

But before you kick off the negotiations, make sure you present yourself as a serious contender to the sellers by getting a mortgage agreement in principle (AIP) from your lender. While this is not a watertight guarantee of a mortgage, it’s a good indication that, in principle at least, you are good for the loan and can hit the ground running when you are shown the green light.

Look at a specialist mortgage

In a bid to try and compensate out-of-pocket first-timers, Halifax has launched a mortgage that will offer a part refund of the tax.  Under the deal, the bank will pay 0.5% of the property value (up to a maximum of £1,250) to the solicitor on completion, which will count towards their Stamp Duty bill.

So, for example, if a customer is buying a house for £150,000, Halifax will pay £750 while for those purchasing a £250,000 home, the bank will contribute the maximum of £1,250. If you are a Halifax current account customer, you will receive an additional £150 on completion.

The mortgage deal, which is available exclusively to first-time buyers, is priced at a fixed rate of 5.99% until May 31, 2014. You will need a deposit of between 10% and 15% depending on your circumstances.

Stephen Noakes, mortgage director at Halifax said: “Now the Stamp Duty break has come to an end, we’re keen to do what we can to continue to support those buying their first home, and soften the blow of a Stamp Duty bill at what’s already an expensive time.”

While the saving only amounts to a maximum of £1,250, Halifax’s mortgage comes with no arrangement fees. As these usually amount to around £1,000, you can add this to your savings and put it towards the cost of the bricks and mortar instead.

Don’t take the first mortgage you are offered

In the excitement of buying your debut property, grabbing the first mortgage you are offered is tempting. But it’s really worthwhile slowing down and considering your options.

Contrary to popular belief, a relatively broad range of lenders offer higher loan to value mortgages. According to MoneySupermarket figures, 49 lenders offer mortgages of up to 90% of the value of the property and 14 lenders still offer mortgages up to 95%.

Especially with small deposit mortgages, it really pays to shop around and get the best deal – getting yourself a cheaper rate could easily save you £2,500 over a couple of years in interest payments.

Read more on this with our article, Getting a mortgage with a small deposit.

Fix the cost with your solicitor in advance

Legal fees are always a killer when you are counting the pennies, as they can be so confusing and opaque. But some solicitors and property lawyers will allow you to fix a price in advance.

A Law Society spokesperson said: “Some solicitors offer fixed fees for home-buying costs, which will always remain at that price, while others will give you an estimate that is only likely to change if there are any unforeseen complications that involve more work. Make sure you know exactly what is on offer before signing up.”

While fixing a cheap price could make valuable inroads to a £2,500 saving, choosing a solicitor based on price alone could prove to be a false economy. The same spokesperson said: “If you cut corners too much on cost with your solicitor, it could cost you more in the long run if any problems emerge.”

You can reduce the cost AND the risk by using a solicitor that is tried and tested by a close friend or family. If you are going in cold, use a member of the Law Society’s Conveyancing Quality Scheme (CQS) which means they must adhere to a certain set of standards. You can find a CQS solicitor near you here.

Please note: Any rates or deals mentioned in this article were available at the time of writing.

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