We get that First-Time Buyers often struggle to get onto the property ladder. For those trying to buy their first home on their own, it can be even more difficult. Saving the deposit, securing the mortgage, solicitors fees and budgeting for Stamp Duty? The costs keep adding up in a relentless spiral.
But borrowers got a hand up from an unexpected source in 2017. In the Autumn Budget, The Government introduced Stamp Duty relief for first-time buyers. Here’s how it works:
First time buyers purchasing their first home for £300,000 or less will pay no SDLT. Where the purchase price is over £300,000 but does not exceed £500,000 they will pay 5% on the amount above £300,000.
Here is a clever, but legitimate route to claiming First-Time Buyer Stamp Duty relief. It’s perfect for borrowers who plan to use the bank of mom and dad but who don’t want to pay Stamp Duty. It can even work for couples where one of the two has bought a house before. But first…
…What is a First-Time Buyer?
The dictionary definition of a First-Time Buyer, according to Google, is:
a person buying a house or flat who has not previously owned a home and therefore has no property to sell.
Given that description, how then can your family or a partner who’s owned a home before count? Because they’ve been on a mortgage deed before, doesn’t that exclude them (and you)?
If they go on the deed to your new home, then yes: it can nullify your claim. But if they are on a joint mortgage with you, that’s fine. The key, then, is to find the right mortgage and a broker who understands your intent.
Accessing the right mortgage
Finding a mortgage broker who knows lenders who can accommodate you is invaluable. For our scenario, they should be guiding you to a Joint Borrower, Sole Proprietor mortgage.
Several lenders offer them, but as a mainstream mortgage, they’re still under the radar. That said, many familiar, reputable banks offer variations, including:
How Joint Borrower, Sole Proprietor Mortgages Work
Imagine you’re a First-time buyer and your dad is going to support you buying your first home. You go to see your broker.
They tell you that, as it’s to be your home, you will be the first applicant and your dad will be the second. You’ll both need to supply all the relevant information to your provider. They have to assess your affordability the same as they would any mortgage applicant. No difference there.
The lender will take both incomes into account. Your dad must declare that he already has a mortgaged property, but has no intention of living in this new home. With that, they can use his income in the affordability assessment process. But the big difference will be that his name won’t appear on the Deeds of the property.
So as far as it concerns HMRC, your dad still only owns one home. Likewise, you also own one home, but you’re buying your first home.
This route will entitle you to the Stamp Duty and Land Tax exemptions up to the threshold of £300000. It is 100% legal and acceptable to HMRC.
Both parties will still be both jointly and severally liable for the debt to the bank. So if you can’t make your monthly mortgage payment, your dad will have to. That’s irrespective of the fact his name isn’t on the Deeds; his name is on the loan.
Stamp Duty exemption for couples with an existing homeowner and a first-time buyer
The same owner/proprietor mortgage set up can also work for couples buying a home together.
Imagine one half of the couple already owns a property and the other is a First-Time Buyer. The broker will find the couple the right mortgage and lender. Then they’ll oversee registering the new property to the First-Time Buyer on the Deeds.
Again, both parties will be on the mortgage and liable for it. But so long as the existing property owner isn’t on the deeds, they will be exempt from Stamp Duty surcharge.
Relief in a market of rising costs
Incentives, like Stamp Duty exemption, have a positive effect on the housing market. In a market where demand drives costs higher all the time, they’re a welcome relief.
Good brokers always look to find specialist mortgage solutions to keep costs down. Such is the case with Joint Ownership, Sole Proprietor mortgages. For us, at least, Stamp Duty shouldn’t stand in the way of you putting your own stamp on your first home.
Author: John Yerou
John Yerou is the owner and founder of Freelancer Financials; a trading style & trade mark of the award winning Mortgage Quest Ltd. One of the most recognised names in providing mortgages for contractors and freelancers across the UK.
In 2004 John began his career in Financial Services as an independent mortgage adviser and broker. John has been instrumental in negotiating bespoke underwriting for contractors with high street lenders.
His presence in the industry as a go-to expert is growing by the day and he is regularly cited and writes in publications both locally and nationally.