Stamp duty remains a costly barrier to many first time buyers

With last week’s rate rise stretching affordability, potential homeowners will have a hard time climbing onto the ladder unless the Government reviews this stealth tax.

New research by Bradford & Bingley shows that 68% of first time buyers have paid or will be liable to pay Stamp Duty. Indeed, such is the increase in property prices, especially in the South East, that 12% expect to pay over 1%. Given the problems many first time buyers are facing at the moment, this tax burden is wholly unfair.

The CML’s monthly lending figures published today also reveal that the number of new homeowners paying Stamp Duty has grown. Figures for May show a record 60% of first time buyers were liable to pay the tax. As Bradford & Bingley’s First Time Buyer Report shows, this situation is only set to worsen. This is at the same time as affordability is further stretched with the news of last week’s rate rise. Additional rate rises can also not be ruled out.

Other key findings include:

52% thought costs such as Stamp Duty were higher than they expected
57% have saved for all / part of the costs
3% have purchased or intending to purchase in a regeneration area in order to avoid Stamp Duty
11% have to reduce their deposit in order to cover them
11% have parents who are paying for them
9% are using a loan or credit card to cover the cost
15% haven’t thought about them because their deposit is their priority and they will worry about them at the point of putting in an offer
7% don’t know how they are going to pay them
1% are simply not able to pay them

Despite affordability concerns, first time buyers remain desperate to get onto the ladder. Nearly half (46%) are worried that house prices will become even more unaffordable the longer they wait and a quarter feel if they don't buy now, they never will. Such urgency is making people anxious to buy at almost any cost.

Many are working longer hours, forsaking holidays and nights out and seeking help from their families to make that first hike up on the ladder.

Andy Wiggans, director of mortgages for Bradford & Bingley, said: “Stamp Duty was never designed to be a tax on first time buyers, yet it now affects a vast proportion of them and is seriously hampering their ability to get a foothold on the property ladder. The average first time buyer now has to find over £1,000 to pay this tax, at a time when most are struggling to even fund a deposit.

“What’s clear is that many parents are now having to help their children onto the ladder. Over a third of parents (35%) are having to withdraw money from their savings, change their lifestyle, remortgage, retire later or take out an equity release product to help their children.

This could have serious implications for their financial future.

“After last week’s rate rise, many first time buyers will have to find an extra £25 per month. This, on top of all their other costs, such as the Higher Lending Charge imposed by some lenders, is going to hurt.

The Government now really needs to take another look at this stealth tax and undertake a wholesale review, not just make piecemeal measures.”