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Issues facing first-time buyers

An interesting piece of research from TSB has revealed that around a quarter (22%) of first-time buyers are failing to take stamp duty costs into account when putting in an offer on their new home.

Stamp duty also a problem for existing homeowners

Surprisingly, this is not a problem confined to first-time buyers, with around 14% of people buying their second or third homes also failing to include stamp duty in their financial calculations.

On a more positive note, a much bigger percentage of first-time buyers (41%) and home movers (45%) are better prepared and have fully factored the tax into the expected cost of buying their new home.

Stamp duty can be costly

According to the research, the average amount paid for stamp duty is over £5,000, which is equivalent to around a tenth of the average deposit put down for a house purchase. For first-time buyers, stamp duty accounts for as much as 15% of the deposit, on average.

The cost of stamp duty can be so prohibitive for some house buyers that they ensure the maximum amount they are prepared to pay for their new home falls within the lower stamp duty bracket. This is particularly common in London (12%) and the south east (13%), which is hardly surprising considering average house prices there are much higher than in the rest of the UK.

Options for financing stamp duty

The TSB survey also looked at how house buyers choose to finance the cost of stamp duty. It found that:

  • Using personal savings was the most popular option for both first-time buyers (36%) and existing homeowners (41%).
  • The next most popular option was obtaining an extension on the mortgage amount, which was used by 21% of first-time buyers and 27% of homeowners.
  • Around 15% of first-time buyers said they received cash gifts from friends and family, which is significantly more than the 4% of homeowners who said the same.
  • Worryingly, 10% of first-time buyers said they relied on credit cards as a means of paying, whilst only 3% of existing homeowners said the same. TSB warns that house buyers should carefully consider the impact this may have on their credit rating, and on the likelihood of their mortgage application being accepted.

“With the expenditure on stamp duty equivalent to a tenth of the average deposit, it is important for potential homebuyers to factor it into their purchase decision at an early stage,” commented Ian Ramsden, TSB’s Director of Mortgages.

“Before starting their house-hunt, people should talk to a qualified mortgage adviser to see what options are available to them. Buyers should kick start their search safe in the knowledge that they can afford the full costs of buying their dream home,” he concluded.

First-time buyers prepared to compromise

First-time buyers have also been the subject of a recent survey by the Post Office, which looked into how they raise the necessary money to buy their first home.

It found that around 36% of the 18-34 age group plan to get on the property ladder in the immediate future and are prepared to make big compromises and sacrifices to reach that all important first rung.

One compromise 44% of new buyers are prepared to make is to take on a ‘starter home’, which may require substantial work to bring it up to an acceptable standard.

First-time buyers appear to be less prepared to compromise on location, however, with the number prepared to not live in a trendy area falling from 38% in 2012 to 35% in 2013. The number prepared to move away from family has also fallen, from 29% to 26%.

In addition to these compromises, first-time buyers have also said they would be prepared to sacrifice certain aspects of their preferred lifestyle in order to be able to save for a deposit:

  • 57% would be prepared to stop buying takeaways,
  • 51% would give up going out at the weekend,
  • 43% would cut their weekly food shopping bill, and
  • 14% would stop contributing to a pension scheme.

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