In amongst all the doom and gloom of lockdown life, it was easy to miss a rare note of positivity. But on 10 July, the chancellor of the exchequer; Rishi Sunak, announced a monumental boost for first-time buyers: a Stamp Duty holiday. If your initial answer was ‘think of all the money we’ll save on stamps!’ then…well, looks like you really need to read this piece…
OK, so, this is not about free stamps? What do recent changes to stamp duty mean for first time buyers?
“The Stamp Duty cuts means that from now, until 31 March 2021, you’ll pay no stamp duty (a tax that is levied on single property purchases) on homes worth up to £500,000. If you’re buying a home worth £500,001 or more you’ll pay less stamp duty than usual,” explains Cassie Stephenson, VP of the brokerage at Habito – the online mortgage company, “Before this, there was no stamp duty on homes under £125,000 (or £300,000 for first-time buyers). That threshold’s now gone up to £500,000 – for everyone.
“This is especially great if you live in an area where property is more expensive, such as the South East or London. This upping of the threshold could help save you money that you otherwise would have owed in tax,” Cassie explains.
Ah! Fantastic! So this is excellent news for all first-time buyers, yes?
“This is especially great if you live in an area where property is more expensive, such as the South East or London. This upping of the threshold could help save you money that you otherwise would have owed in tax,” Cassie explains, “But most first time buyers already paid little to no stamp duty, due to no tax being payable on properties worth £300,000 or below – so in practice, this is unlikely to help many more first time buyers.”
Bummer. What else do we need to know before getting a mortgage?
“We really don’t want to put anyone off the home buying process but…” say our pals Ashley Agwuncha and Eve Obasuyi aka The Money Medics.
But what?
“Ok, the costs can be very overwhelming.”
Go on then…tell us…
“Ok well, besides your deposit, you’ll need a Valuation Fee. The mortgage lender will assess the value of the property to establish how much they are prepared to lend you. This is usually based on property’s value. Next, you’ll need a Survey fee. It is important to get the prospective home you’re looking at checked by a surveyor to avoid any problems before you buy. A bad roof or a house with damp issues can cost you thousands in the long term. There will also be legal fees..You’ll need a solicitor to carry out all the legal work when you’re buying a home. These fees can cover things such as searches (HM Land Registry Search, Bankruptcy Search) photocopying, Land Registry Fee, we could go on but just be prepared throughout the legal process.”
Eurgh, that sounds like a lot.
“There’s also an electronic transfer fee…”
There’s more??
“Yes. A lot more. The Electronic Transfer Fee is the lender’s cost of transferring the mortgage money from the lender to the solicitor. This will be handled by your solicitor and will most likely be included in the solicitors’ fees. You’ll also need to be aware that; if you are purchasing a leasehold property which is usually a flat you will be required to pay ground rent and service charge up front. You can easily get caught out by this cost so do discuss this with your solicitor.”
Any more bad news?
“Mortgage costs! In most cases you’ll be using a mortgage to purchase a home so it will include costs such as a booking fee, an arrangement fee and a mortgage valuation fee. You can add these associated costs to your mortgage but it is better to pay them upfront to avoid accumulating interest on them.”
What about if you’re self-employed?
“There are more hoops for the self-employed to jump through with lenders than ever before,” confirms Cassie from Habito; “Firstly, lenders are introducing more paperwork. Banks such as NatWest have been asking applicants to complete a questionnaire pre-application so they can make an initial assessment on a potential applicant. If, or when, someone does make a full mortgage application, we’re seeing that for the self-employed almost all cases are being referred to manual underwriting – which typically takes longer to approve. There might also be a need for more information, and we’ve seen more documents being requested, such as business bank statements.”
Has lockdown affected things for the self-employed?
“It could, yes,” Cassie continues, “If you run your own company, then, when it comes to business bank statements, another change we’ve seen is that rather than relying on a company’s turnover from the last 2-3 years to make the assessment, lenders are now also typically also reviewing turnover in the last 3 months, to see if there has been a significant change since lockdown. Unfortunately for the applicant, if someone’s taken financial support from the government, or if their business completely closed during lockdown, lenders are seeming to judge these more harshly.”
Right so, how much deposit will we need?
“Generally, you need to try to save at least 5% to 20% of the cost of a home but if you have a bigger deposit your interest rate could be lower as borrowing a smaller percentage of the total cost of the house means a lower risk for the lender,” explains Andrew Johnson, money expert at the Money and Pensions Service, “The cheapest interest rates are typically available for people with a 40% deposit.”
What about the rest of our finances? Do we need to do anything?
“Have you checked your credit score?” asks Andrew, “Your credit score impacts whether or not your mortgage application will be successful so it’s vital that you check it before applying. You can check your score for free via ClearScore, MSE’s Credit club and Credit Karma. There are a number of ways you can improve your credit score such as registering on the electoral roll at your current address, checking for mistakes on your file and making sure you pay phone and internet bills on time.”
Should we get professional help?
“Yes!” says Andrew, “There are many different mortgage deals to pick from, so choosing the right one can be tricky. It can depend on several factors, so it’s a good idea to do some research and talk to a mortgage broker or advisor.”
I suppose that will cost MORE money?
“A big myth is that you have to pay for mortgage advice,” says Cassie, “Every mortgage broker in the UK gets paid by the lender for placing your mortgage with them, and many brokers charge the homebuyer around £200-£500 too. BUT there are free brokers online, including Habito. Another money-saving tip is that mortgage brokers often also get access to better rates. So, be sure to check with a free broker what rate they could get you, as it could help you save even more on a deal.”
Can we get any government help?
“If getting a 15-20% deposit together isn’t an option for you, but you do have a 5% deposit, then you could look at using the Government’s Help to Buy Scheme,” says Cassie, “This is still available to you if you can also meet the other criteria for getting a standard mortgage. Once the Government loan of up to 20% of the property value (40% in London) is included, it means you’ll need to qualify for a standard mortgage for the remaining amount – so either 55% or 75% of the value of the home.”
What other advice do you all have?
“You need to get yourself in the best financial shape you’ve ever been in your life so lenders can view your mortgage application more favourably,” say Ashley and Eve, “Improving your financial health involves reducing any debt you have, cutting back on non-essential purchases and reviewing your credit score to see if it needs improvement. Working on all these elements will put you in better shape when it’s time to apply for a mortgage.”
“Plus, given all the paperwork requirements associated with the mortgage process, do yourself a favour by getting your financial paperwork in order at the beginning,” they add, “There’s a few key things you’ll need: three months’ of bank statements, three months’ of payslips and your passport or driver’s license (please make sure they are up to date).”
This sounds like a LOT of work- is now the right time?
“If you know you want to buy, get on with it!” says Cassie, “ Buying a home can take months, depending on how long the home-buying chain is, and if there are any delays for any reason. The stamp duty cut is available for those who complete on, or by, 31 March 2021 which is only 7.5 months away. We also don’t know if there’ll be a second Covid-19 wave of infections in winter or any local lockdowns, so if you’re considering buying this year, don’t hang back for the sake of it – start looking at properties now!”