We know you’re probably thinking, ‘What is a first-time buyer and what difference does that make? Under UK law, first-time buyer has a special status enabling anyone that qualifies to save considerable amounts on Stamp Duty.
Defining a first-time buyer isn’t always a black or white affair as there are a few shades of grey in between. First-time buyer status can vary from lender to lender, while the Government has its own rules.
In November 2017, the government announced stamp duty relief for all first-time buyers in the UK.
Under this relief, first-time buyers will pay no stamp duty on purchases up to £300,000 and a rate of 5% on portions between £300,001 and £500,000. If the property you are buying is worth over £500,000, you will pay the standard rates of Stamp Duty and will not qualify for first-time buyer’s relief.
As can be seen from the table below, Stamp Duty otherwise starts at house prices above £125,000. For example, if the property is worth £450,000, you will pay no Stamp Duty on the first £300,000 and 5% on the remaining £150,000. Under the old system, first-time buyers would pay £12,500 in Stamp Duty on this £450,000 property. The new system means they will pay just £7,500, a saving of £5,000.
This new relief makes it important to understand who the UK government defines as a first-time buyer to make sure that you comply. Working out who is a first-time buyer and who isn’t should be easy, but there are certain circumstances where an individual or couple may think of themselves as first-time buyers only to find out that their lender or the Government considers them otherwise.
You will commonly be accepted as a first-time buyer
- If you’ve never owned a property before and you’re applying for a mortgage alone. You are a bonafide first-time buyer in this situation. There are no sneaky rules or loopholes to worry about.
- If you’ve owned a commercial property, but never owned a residential property. First-time buyer status only applies to residential properties, so if you’ve owned a shop or a pub, you could still qualify for Stamp Duty relief. However, if your commercial property had a residential element (and was therefore defined as a semi-commercial property), you would not qualify.
- If you apply for a joint mortgage and none of you has previously owned residential property. Your stamp duty bill would be reduced in this situation too.
You will commonly not be accepted as a first-time buyer
- If you’ve previously owned a property and sold it. To qualify, you need to have never owned a property.
- If you inherited a property or were added to the deeds. First-time buyer status is based on ownership of residential property, not whether you bought it.
- If you’ve previously owned a buy-to-let property. If you’ve previously owned a buy-to-let property, you no longer qualify as a first-time buyer.
- If you part-owned a property in the past. If you previously had a shared ownership mortgage or a joint mortgage, you’ll no longer qualify as a first-time buyer.
- If you owned a residential property overseas. Overseas properties still count when it comes to first-time buyer status.
- If your co-owner has owned a residential property. With joint mortgages, all applicants have to be first-time buyers in order to qualify for stamp duty relief.
- If your spouse has owned a residential property. Spouses count as a single buyer in property law. If your spouse isn’t a first-time buyer, you’re not either, even if you’re applying to buy a property in your own name.
There are a couple of things you need to be aware of:
First, the maximum saving on Stamp Duty for a property purchase is still £5,000 regardless of the number of names on the mortgage deed.
Second, if the mortgage application is only in one name, it will be based on that person’s income alone, which might impact how large your mortgage can be.
You also need to think about what would happen if you split up. If the property is in both names, you will both have an ownership claim. If the property is only in one name, then it’s possible you or your partner could be left with nothing legally, even if you had “an understanding”.
Our Step by Step Guide to Buying your Home
Start by calling your nearest Mortgage Bureau office or complete the enquiry form opposite to get your Mortgage Agreement In Principle.
London 0203 319 3679
Cambridge 01223 656412
Milton Keynes 01908 822646
King’s Lynn 01553 770102
Norwich 01603 624623
Bury St Edmunds 01284 337069
Peterborough 01733 358488
Ely 01353 383773
This speeds up the whole house buying process because it means you can move as fast as possible once you have found the right house. Then register with an estate agent if you haven’t already done so.
When you find a property you want, make a formal offer – ‘subject to contract’. Call The Mortgage Bureau. It is now time for us to put in an official application for a mortgage with your chosen lender.
The lender will arrange for an approved surveyor to carry out a ‘valuation report’ on the property. (A lender’s offer will always be conditional on the value, as shown in the report.) To check the property is in sound condition, it is well worth getting a more comprehensive survey too. You need to arrange this. The same surveyor can usually do it on the same visit. You need to instruct a solicitor to act for you. Their main job is drawing up contracts (i.e. ‘conveyancing’), and checking there are no building plans that might affect the property.
The Lender sends you a copy of the valuation report. Assuming all is OK, your mortgage is confirmed. Alternatively, the lender may agree the mortgage subject to some conditions, such as some repair work being done to the house. In this case, you need to get quotes for the work and see if you can negotiate a reduction in the price, or get the seller to pay for the job. You can ask your solicitor to do this for you. The surveyor will usually reinspect the property to make sure that the work has been done.
Your solicitor now does the searches, checks the ownership of the property and so on – before drawing up the contract.
Contracts are exchanged (between you and the seller). You get the contract to sign and – in most cases – now pay the deposit for the property. You are legally committed to buying the property when you’ve signed the contact. Make sure you arrange immediate insurance cover. Your solicitor will give you a ‘completion date’ (i.e. date when the property becomes yours). You can start planning your move.