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Analysis from AJ Bell shows that first time buyers can use a combination of the new stamp duty relief and the Lifetime ISA (LISA) to pay for 10 per cent of their house purchase.
Reforms to stamp duty announced by Chancellor Philip Hammond in yesterday’s Budget mean there will be no charge for first-time buyers on properties worth £300,000 or less. For properties costing up £500,000, no stamp duty will be paid on the first £300,000.
Savers aged 18-39 can also benefit from the LISA, a product launched in April 2016 which provides a 25 per cent bonus on up to £4,000 a year. Withdrawals are tax-free for the purchase of a first home (provided it is worth £450,000 or less), after your 60th birthday or if you become terminally ill.
Tom Selby, senior analyst at AJ Bell, comments:
“Under the old system, a first-time buyer who bought a house worth £300,000 would pay £5,000 in stamp duty, bringing the total cost to £305,000.
“Someone who saves the maximum of £4,000 a year in a LISA could end up with a total fund value, including Government bonus and investment growth, of £66,000.
“The combination of the £26,000 Government bonus and investment growth via the LISA and the £5,000 stamp duty saving means the house would cost £274,000 – a 10 per cent reduction (see worked example below).
“While the stamp duty relief is good news for first time buyers, with a maximum saving of £5,000 and an average saving of £1,660 it’s hard to see it as a game-changer for most young people on its own.
“However, once you combine it with the tax free investment returns and Government bonus available via the LISA for first time house purchases, the package starts to look more attractive. A 10 per cent discount on a £300,000 purchase is not to be sniffed at.
“Whether this actually has the desired effect in helping young people onto the housing ladder remains to be seen. If the Government really wants to provide a material housing boost to millennials it could increase the size of the LISA bonus.
“The OBR has reduced its forecast of the cost of the LISA to the Government by 40 per cent (£2.6 billion) due to sluggish take up. This suggests a greater incentive may be needed to encourage more people to use LISAs and a higher bonus could be accommodated within the initial cost estimates.”
Example
Property price £300,000 + £5,000 stamp duty = £305,000
Maximum saving into a LISA for ten years would cost £40,000
Fund value including the Government bonus and investment growth of 5% (post charges) would be £66,000 for house deposit
The LISA has given the first time buyer £26,000 (£66,000 fund value – £40,000 investment made)
Stamp duty relief gives them £5,000
Total – £31,000
So, rather than £305,000 the house will cost them £274,000, a 10 per cent reduction.
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