Attempts by the government to help first-time buyers onto the housing ladder could actually be pricing them out of the market because of anomalies in the way new stamp duty land tax (SDLT) rules operate
Nearly three in five would-be buyers aged under 35s now need assistance from their parents if they are to have a hope of buying a home, says accounting firm Blick Rothenberg.
Denise Yau, a tax manager at Blick [i]Rothenberg, said: ‘Due to a toxic combination of rising house prices, the squeeze on wages, high rents, stricter affordability tests for mortgages and higher deposits, the “Bank of Mum and Dad” has become more important than ever to help first-time buyers get a foot on the property ladder.’
To recognise the difficult property market, the government has introduced various SDLT reliefs and initiatives. The most recent of these was introduced on 22 November 2017 and structured as a SDLT relief for first-time buyers purchasing homes costing up to £500,000, with no SDLT due on the first £300,000 of consideration.
This follows the introduction of a 3% surcharge for purchases of additional properties was from 1 April 2016, in an attempt to cool the ‘buy-to-let’ market.
Yau points out that the combination of these two initiatives is causing difficulties, as banks often require parents’ names to be on the mortgage and title deed for first-time buyers because, in practice, it can be difficult to recover funds if they are only named as guarantors.
‘Not only does this usually scupper the ability to qualify for the first-time buyer relief (as the parents are not themselves first time buyers), if the parents’ already own a home themselves, the entire purchase would then be subject to the additional 3% SDLT rates,’ Yau said.
This means the SDLT bill could therefore increase from nil to £14,000 for a property costing £300,000. Usually, SDLT of £14,000 would only be for a purchase of a property for £480,000.
Yau added: ‘While we are aware that some mortgages are available which do not require the parents name to be on the title deed, the number of banks offering this is more limited, with the rate of interest usually higher.’
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