Conveyancing Update – Stamp Duty Land Tax & Mortgage Rates

Changes to the Stamp Duty Land Tax Thresholds

On 23^rd September 2022 the Chancellor cut Stamp Duty Land Tax rates as part of his mini budget. A true first-time buyer (i.e. a purchaser who has never owned or held any legal interest in property) now pays no Stamp Duty Land Tax on a purchase of residential property under £425,000.

The new rates are as follows:

• 0%: £0 – £250,000 (£425,000 for first time buyers)
• 5%: £250,000 – £925,000
• 10%: £925,000 – £1,500,000
• 12%: £1,500,000+

The Chancellor has, effectively, done away with the middle 3% bracket and as a result, the majority of house purchasers are therefore better off as anyone purchasing at over £250,000.00 will now save £2,500.00.  As the tax is charged in sections on the amount that falls into any one particular bracket, the calculation of tax to be paid is not straightforward but you can use the HMRC calculator to work it out.

Changes to Mortgage Rates

After the Stamp Duty holiday put in place during lockdown it was feared that the end of the “holiday” would trigger a crash in the housing market. This does not appear to have come about with the market currently remaining buoyant.

That is, until the mini budget was announced provoking a sharp rise on Mortgage interest rates. In September 2022 the Bank of England increased interest rates by ½ a per cent. It has been slowly increasing interest rates over the past year but the impact on mortgage rates has been less significant. A rise interest rates does equate to a rise in the cost of mortgage payments.

However, this September saw some lenders pulling mortgage offers as they felt the rates offered were unsustainable.  Mortgages have gone up from between 2% and 3 % to nearly 6% which is an increase of several hundred pounds on a monthly payment. Buyers have had to review what they can afford and this, inevitably has a knock-on effect on the housing market.

In summary

First time buyers can make significant savings on the Stamp Duty aspect providing they purchase at an affordable level and allow for mortgage rates to increase over time.

If you’re due to re-mortgage now is the time to “lock in” to a longer-term fixed rate mortgage as it is anticipated that rates will only increase for the foreseeable future. Some lenders are offering ten year fixed rates. This prompts the question as to whether we’re heading back to the “good old days” when you took out a mortgage with one bank / provider and remained with them for the term of the mortgage. Is this the end of switching your mortgage every two years or so?

If you have the cash available and are looking to develop your property portfolio there is likely to be an influx of property coming onto the market for sale likely to create a drop in house prices as the cost-of-living crisis bites and people look to down size their properties or sell altogether as mortgages become unaffordable for some.

In light of the current economic climate you may wish to consider taking tax or wealth management advice. Here at Pinney Talfourd we can offer Inheritance tax advice via our Private Client Team and broader based financial advice from our partner Pinney Talfourd Wealth Management. We are always happy to assist our clients in obtaining the right advice from an appropriate source. Please don’t hesitate to contact us for recommendations.