New stamp duty - new stampede for mortgage advice?
The reform of stamp duty land tax was a highlight of the Chancellor’s Autumn Statement. Giving the buyer of the average UK home up to £4,500 more in spending power, it should also correct price distortions at the old boundary marks, which in turn may get housing chains moving faster. So a lot more people could soon be asking: what’s the right mortgage for me?
It will not be mourned. The old system of stamp duty land tax has been kicked out and replaced. Instead of the old cliff-like structure, the Chancellor has introduced a more staircase-style system, which will work in similar fashion to income tax. For the vast majority of property buyers, and indeed sellers, this will come as very good news.
Under the new system, there will be no tax on residential property purchases of £125,000 or less. If you buy a home priced from £125,001 to £250,000, you will pay 2 per cent tax just on the portion of the price that falls within that band. Similarly, if you buy a home that costs between £250,001 and £925,000, you will pay 5 per cent on the slice above £250,001 but continue to pay 2 per cent on the slice from £125,001 to £250,000. Properties between £925,001 and £1.5million will be taxed at 10 per cent (for that slice), while those costing £1.5million or more will incur 12 per cent tax on the upper portion.
In effect this means lower costs for the buyers of all but the most expensive homes. But another big effect of this change may be to stimulate the housing market as a whole. The old system was notorious for causing ‘bottlenecking’ around the pricing bands. People selling a house valued just above a threshold would come under great pressure to lower their price, and many were understandably reluctant, with a lot of housing chains delayed or broken as a result. The reforms should consign all that to history.
But one choice hasn’t got any easier…
Buying or selling a house suddenly looks that little bit more attractive, and many buyers will find their options broadened. So it’s likely that a lot more people will soon be searching the market for a mortgage.
If you’ve done this even once, you’ll know how tricky it can be. The options are dizzying: fixed rate, standard variable rate, tracker variable rate, capped rate, discount variable rate, offset, flexible, or even buy-to-let? On top of which, some of this big decision will be based on guesswork. Will interest rates rise? How fast, and by how much? And how well could I afford that to happen?
Some buyers swear by playing safe, always going for the fixed rate if they can get it. The logic here is: I know the maximum I can afford to pay, so at least I’ll never pay more than that. Fair enough. But if you do that, then your initial payments will be higher, and if the base rate of interest stays lower than your fixed rate for long enough, you’ll end up paying far more in total than you otherwise would have.
Still, what if you were on a variable rate and interest rates soared, raising your monthly payments above what you can pay? The first point to bear in mind is that you don’t know for certain how much you’ll be able to afford in, say, five or ten years’ time. You might get a better job, or you might have additional income from maturing investments – if you were prudent enough to make some when you started your mortgage term. Or you might be able to move easily to a different mortgage if you made a shrewd choice to begin with. And so forth. These are all areas where an adviser can bring you greater certainty. They can work through each scenario with you, so you can more easily compare your options and make a genuinely informed choice.
Choosing the right mortgage is about considering many interconnecting factors – not just your current income and what you think interest rates might do. It’s a lifestyle event, and so needs considering in the context of your whole lifestyle. Lenders have belatedly woken up to this themselves, which is why they now ask you so many more questions. Now more and more buyers are taking a similar approach, by talking to mortgage advisers who’ll also question them rigorously, but with a view to finding them the best possible deal.
A whole-of-market mortgage adviser will take you through all the available options, and won’t try to sell you products from any particular providers. You pay them to look after your best interests, so you know that the advice you’re receiving is unbiased. When taking out any mortgage, some unknown factors will always remain, but your adviser can help to reduce most of them – making this critical life event a lot less like guesswork.
With so many people set to save money under the new stamp duty system, it’s surely a good time to make saving a habit by getting proper mortgage advice.