London homebuyers in last ditch effort to dodge stamp duty hike
Tens of thousands of Britons are seeking to buy a house and risk more than £11,000 in extra charges if they miss the deadline
[LONDON] Stephanie Evanson, a paralegal from Birmingham, is in a race against time to complete the purchase of a £500,000 (S$862,235) apartment in southwest London.
The 26-year-old and her partner are due to exchange contracts on a property near Wimbledon just before the end of the month. That’s the deadline for buyers to complete deals before higher rates of UK stamp duty tax kick in, potentially adding thousands of pounds to the cost of buying a home.
Like many first-time buyers, she’s already financially stretched to afford the flat in the first place. She and her partner abandoned one purchase because the seller was taking too long and they could not risk delays that would extend the paperwork into April and taxes of about £17,250, up from the £6,000 they have been budgeting.
“We have saved most of our lives to get to this point,” she said. “We physically cannot afford a hike.”
In London and across the nation, first-time buyers are scrambling to complete deals before next month, in a market which feels increasingly unattainable to many.
The Labour government, seeking to boost revenue and reduce a soaring budget deficit, is lowering the minimum threshold at which homebuyers pay stamp duty. First-time buyers face a 5 per cent tax on the value of property over £300,000 from April, compared with a £450,000 threshold previously, while second-time homebuyers will pay a 5 per cent tax on property worth over £125,000, down from £250,000.
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The number of first-time buyers trying to complete home purchases in London is about a third higher compared to the same time last year, according to property company Rightmove. Tens of thousands of Britons are seeking to buy a house and risk more than £11,000 in extra charges if they miss the deadline.
UK Prime Minister Keir Starmer has pledged to build 1.5 million homes in the next five years to tackle the country’s housing affordability crisis. But the stamp duty hike is perhaps having the opposite impact on first-time buyers, who feel even less able to buy, real estate agents say.
Homeownership feels out of reach for many young Britons squeezed by the cost of living crisis and stubbornly high mortgage rates. That’s especially the case for those not receiving a financial knee-up from the Bank of Mum and Dad.
Even with pent-up demand, the UK housing market has lost its shine in recent years. Prices in London registered their biggest drop in 17 months in February, according to Halifax. Rate increases, inflation and anxiety around job losses are all putting the market under pressure.
The market is also losing some momentum with the prospect of the increase in stamp duty. Transactions and prices are expected to decline in London following the hike.
A lot of young buyers looking to get on the ladder “do not have cash lying around”, said Simon Nosworthy, a partner at law firm Osbornes Law. “Young people are scraping to afford to buy as it is.” Many people, he said, will look to renegotiate prices to factor in the higher costs.
Miles Demmer, a 33-year-old real estate agent in London, is considering that very strategy. He’s seeking to buy a one-bed flat in Surbiton, southwest of London, for about £400,000 before Apr 1. He’s facing a £5,000 tax bill if he doesn’t close on time.
If that’s the case, he will lower his bid by a similar amount, or try to gin up more commissions from the sale of property in the upmarket London neighbourhood where he works – to make up the difference.
“I could sell a really big house and make maybe five grand tomorrow,” he said. “But the reality is that’s not the case for everyone.” For those lucky enough to be able to buy, many are negotiating.
While low-income buyers struggle to raise money for the tax, Demmer’s well-heeled clients who buy eight-figure houses and already face six-figure stamp duties will not be affected as the stamp duty threshold is staying the same for properties on the higher end of the scale. First-time homebuyers purchasing properties over £1.5 million face a 12 per cent tax, while people buying a second home over £1.5 million pay a marginal 17 per cent tax.
Waiting to buy
Some of those lower down the income scale are also taking the decision to wait before making their first purchase, said Elliot Nathan, senior partner at mortgage broker Eddge.
Many of his clients are being more patient and strategic, factoring the stamp duty hike into their mortgage calculations, and hoping rates will drop further before making an offer, he said.
“Borrowers are paying much more attention to bank-based rate announcements and interest rates than they used to,” he said, “People are calculating more how the finances will affect them and taking their time to buy.”
That’s the case for Tom Williams, a 31-year-old mechanical engineer living near Norwich in the east of the country, who’s been looking to buy a two-bedroom semi-detached house at £350,000 with his partner for several years.
Williams said the new stamp duty increase means they will have to wait an extra six months to a year to save up before they can afford the extra £2,500 in tax. He does not mind waiting, though, as he expects rates to decrease and prices to stay relatively flat.
“It’s the biggest financial decision that most people will ever make in their lifetime and for me, I want to make sure that I get it right,” he said. BLOOMBERG
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