Rent guarantee – Stamp duty holiday warning for first-time buyers
Mortgage brokers are warning first-time buyers not to rush to secure a new property just to beat the deadline for the stamp duty holiday which ends next month.
Any potential homeowner who purchases a new property worth below £250,000 before 24th March will be exempt from paying the one per cent stamp duty charge.
However, mortgage experts warn that with house prices expected to fall by as much as five per cent in 2012, any saving made by beating the stamp duty exemption deadline could be wiped out within months by a fall in the value of the property.
The Chancellor, George Osborne introduced the tax break to encourage first-time buyers into the property market. However, it is now being pulled as Mr Osborne judged that it was not successful in encouraging people to buy a new home.
However, the biggest impact on the reduction in new house purchases which is causing a stagnant UK property market is the high level of deposit lenders are asking for before they grant a mortgage. The ratio of annual earnings to house prices is historically very high which means borrowers cannot borrow enough to get a mortgage.
In previous generations a house cost roughly four times the average annual income and lenders would lend three times on average an individual’s salary. This meant that a larger proportion of houses in the UK were within reach of many households looking to buy their first home.
Now with average wages around £25,000 and the average home priced above £150,000 the ratio has moved out to around six times the average annual salary. Lenders will lend on average four times an individual’s annual salary which means the balance (the deposit) is higher.
Rents are at a record high which means it is even more difficult for first-time buyers to save up for a deposit. As with all aspects of the housing market, there are significant regional variations.
As an alternative to the stamp duty holiday, the government plans to offer other incentives to encourage first-time buyers onto the housing ladder. The government is introducing the NewBuy Guarantee Scheme where lenders will be able to offer 95 per cent mortgages without taking on all of the risk.
And borrowers will be lent part of their required deposit interest-free for five years as long as they buy a newly built home that is part of the scheme.
Source: http://www.myfinances.co.uk/mortgages/2012/02/12/stamp-duty-holiday-warning-for-first-time-buyers