Home Residential PropertyHow first-time buyers can get a 10 per cent discount

How first-time buyers can get a 10 per cent discount

by Sponsored Content
24th Nov 17 9:25 am

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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 yesterdayโ€™s Budget mean there will be no charge for first-time buyers on properties worth ยฃ300,000 or less. For properties costing up ยฃ500,000, no stamp duty will be paid on the first ยฃ300,000.

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 ยฃ4,000 a year. Withdrawals are tax-free for the purchase of a first home (provided it is worth ยฃ450,000 or less), after your 60thย birthday or if you become terminally ill.

Tom Selby, senior analyst at AJ Bell, comments:

โ€œUnder the old system, a first-time buyer who bought a house worth ยฃ300,000 would pay ยฃ5,000 in stamp duty, bringing the total cost to ยฃ305,000.

โ€œSomeone who saves the maximum of ยฃ4,000 a year in a LISA could end up with a total fund value, including Government bonus and investment growth, of ยฃ66,000.

โ€œThe combination of the ยฃ26,000 Government bonus and investment growth via the LISA and the ยฃ5,000 stamp duty saving means the house would cost ยฃ274,000 โ€“ a 10 per cent reduction (see worked example below).

โ€œWhile the stamp duty relief is good news for first time buyers, with a maximum saving of ยฃ5,000 and an average saving of ยฃ1,660 itโ€™s hard to see it as a game-changer for most young people on its own.

โ€œHowever, 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.ย  A 10 per cent discount on a ยฃ300,000 purchase is not to be sniffed at.

โ€œWhether this actually has the desired effect in helping young people onto the housing ladder remains to be seen.ย  If the Government really wants to provide a material housing boost to millennials it could increase the size of the LISA bonus.ย 

โ€œThe OBR has reduced its forecast of the cost of the LISA to the Government by 40 per cent (ยฃ2.6 billion) due to sluggish take up.ย  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.โ€

Exampleย 

Property price ยฃ300,000 + ยฃ5,000 stamp duty = ยฃ305,000

Maximum saving into a LISA for ten years would cost ยฃ40,000

Fund value including the Government bonus and investment growth of 5% (post charges) would be ยฃ66,000 for house deposit

The LISA has given the first time buyer ยฃ26,000 (ยฃ66,000 fund value – ยฃ40,000 investment made)

Stamp duty relief gives them ยฃ5,000

Total – ยฃ31,000

So, rather than ยฃ305,000 the house will cost them ยฃ274,000, a 10 per cent reduction.

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