There’s really only one place to start this weeks column and that’s with the superb news released by the Chancellor in regard to changes to Stamp Duty.
With effect from Thursday 4th December, stamp duty will be applied as a progressive tax. Buyers will pay no tax up to the first £125,000, they will be charged 2% on the additional portion up to £250,000, then 5% on any additional portion up to £925,000 and 10% on the additional portion up to £1.5m and 12% on any portion above.
This is a big step forward and very positive for house purchasers. On the old scheme, a person buying a property at £300k would have paid 3% equating to £9,000. On the new scheme, there is nothing to pay on the first £125k, 2% to pay on the £125k to £250k (£2,500), and 5% on the remaining £50k (£2,500) making the new total £5000, a saving of £4,000 in total.
Although this is a hugely positive and much applauded move, there is still much uncertainty about customers actually being able to achieve a mortgage. Until lenders criteria is truly relaxed and funding becomes more widely accessible, cash buyers are likely to be the main benefactors of these rewards rather than the first time buyer or home mover.
Recent data published by the Bank of England has reported that the average Lender Standard Variable Rate, the rate that which many customers revert to after their promotional or fixed rate period ends, has risen to 4.53%. This is up 0.16% over the last year, despite the average two year fixed rate dropping by over 0.75% in the same period and the Bank of England base rate not changing for over five years. They have also noted that the largest proportion of mortgage borrowers have not experienced a rate rise for more than five years (some for more than seven) and are concerned about the possibility of what is generally known as ‘payment shock’. For example, on a £100k mortgage a 1% rise in rate will mean a monthly increase of circa £83.33! For some, this points towards the possible need to consider a fixed rate to avoid this possibility. Maybe time to talk to your independent mortgage adviser?