What the mini-budget U-turns mean for first-time buyers

What the mini-budget U-turns mean for first-time buyers

10/18/2022

Higher savings rates, the stamp duty cut surviving new Chancellor Jeremy Hunt’s wrecking ball and the heat coming out of the housing market combined could mean first-time buyers are in for some long-awaited luck.

Savings

The upside of higher interest rates is higher savings rates, and while they’re still paying less than inflation they are improving daily. That is good news for anyone saving for a deposit.

The best easy access savings rate is currently from Yorkshire Building Society and pays 2.5 per cent. At the end of a year, £1,000 will be worth £1,025 and there’s no penalty charge if you need to take any money out.

If you opt for a one-year fixed account, Coventry Building Society will pay 4.4 per cent and that £1,000 will be worth £1,045 this time next year. The catch is that you can’t access it for 12 months.

The best one-year fixed-rate cash Isa is currently from Gatehouse Bank and pays 3.7 per cent, upping your balance to £1,037 in a year – less than that 
4.4 per cent fixed rate, but you don’t have to pay any tax on the interest.

Finally, government is still offering first-time buyers saving into a Lifetime Isa a cash bonus. Beehive Money is paying a 1.7 per cent rate at the moment, earning you £17 in interest over the year. You can save up to £4,000 a year into these accounts and the Government will add a 25 per cent cash boost. That takes your £1,000 balance to £1,267 over 12 months. You do have to use the money to buy your first home or keep it in the account until you retire, and only under-fifties are eligible.

House prices

It’s far from certain that house prices will come down, but with mortgage rates so high the heat is coming out of the market. Property portal Rightmove reported that, in the two weeks following former Chancellor Kwasi Kwarteng’s mini Budget, buyer demand was down 15 per cent on the same fortnight last year.

The average asking price hit a record of £371,158 last month, up 0.9 per cent in a month, and 7.8 per cent in a year. However, the number of properties seeing a price reduction rose two percentage points to 23 per cent. The average agent also now has 50 properties on their books, up from a low point of 40 in January.

Taken together, there are early signs that buyers will have more negotiating power on price.

Stamp duty

One of only two measures to survive Jeremy Hunt’s axe was the cut in stamp duty, meaning that for those buying homes costing more than £125,000 there is less tax to pay.

There is also no stamp duty to pay on properties up to £250,000 and for first-time buyers, zero stamp duty to be paid on homes worth up to £425,000, up from the previous threshold of £300,000. Mortgage rates may be up, but all buyers will be £2,500 better off and first-time buyers will have to hand over £1,250 less to the taxman than they would have at the start of last month.

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