Stamp duty now equivalent to a 10th of the average deposit and many remain unprepared for the fee

3rd March 2014

Almost a quarter of first-time buyers are not considering the cost of stamp duty before making an offer on their potential home, according to new research by TSB.

In fact, one in seven, or 14% of people buying their second or third homes do not consider stamp duty either.

The study also shows that people’s level of consideration of stamp duty varies quite significantly across Britain. Residents in the East of England, at 50%, the south west, 49%, and south east, at 48%, are stamp duty savviest, setting aside a specific amount to cover stamp duty.

In contrast, one in four of those living in the north west, at 26%, and Wales, at 25% are not considering the cost of stamp duty before making an offer on their potential home.

However, many first-time buyers, at some 41%, and established homeowners, at 45% are well-prepared having calculated the exact amount to set aside for stamp duty.

Stamp duty now equivalent to almost a tenth of the average deposit

The research also found the average stamp duty outlay exceeds £5,000, the equivalent of nearly a tenth of the average deposit. For those looking to buy their first home, the average stamp duty is equivalent to an even larger proportion at 15% of the average deposit.

In fact, it can be such a large cost that almost one in 10 homebuyers have capped their bid for a property in order to fall into a lower stamp duty bracket. The most likely to have done so are those living in London, at 12%, and the south east, at 13%, who also face the highest average house prices in the UK.

A third, at 31% of current homeowners said they did not pay stamp duty. This is in stark contrast to those currently looking to buy their first property as the majority, at 86%, expect to pay stamp duty.

How to pay the price of stamp duty

Worryingly, one in 10 first-time buyers turn to credit cards as a means of paying, whilst less than one in 30 established homeowners do so. Those intending to do so should carefully consider the impact this may have on their credit rating, and on the likelihood of their mortgage application being accepted.

Ian Ramsden, TSB’s director of mortgages, says: “With UK house prices rising, it should come as no surprise that the cost of stamp duty is on the up too. Yet, a worrying number of homebuyers are failing to factor this significant outlay into the overall cost of buying a home.

“With the expenditure on stamp duty equivalent to a tenth of the average deposit, it is important for potential homebuyers to factor it in to their purchase decision at an early stage. 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.”

1 thought on “Stamp duty now equivalent to a 10th of the average deposit and many remain unprepared for the fee”

  1. Anonymous says:

    This is a very interesting analysis of the growing importance of stamp duty to UK households. From the 2012 ONS Consumer Price Indices Technical Manual it would appear that the RPIJ does not include stamp duty on homes. There is no reference to stamp duty as one of the excluded indirect taxes in RPIY, while the manual does mention that stamp duty on share transactions is excluded from CPIY. Stamp duty was included in the pilot monthly indexes for owner-occupied housing based on the net acquisitions approach calculated by the ONS when the CPI Advisory Committee was advising on a CPIH series, and presumably will be included in the quarterly series for OOH based on net acquisitions to be published in September in keeping with Eurostat requirements.

    If stamp duty is not currently part of the RPIJ, it would be useful to add it the next opportunity offered. It is too late to do anything for 2014, but it could be added with the February 2015 update. Given that the RPI is the primary index for upratings, there may be a case for introducing stamp duty with a modified expenditure weight, i.e. not the actual stamp duty expenditures made by the target population but those that would have been required to preserve a constant stock of owner-occupied housing per household. However, this might be regarded as a hairsplitting refinement, especially since nothing similar is done for other transaction costs, such as estate agents’ fees.

    The exclusion of stamp duty tends to underestimate actual RPIJ inflation in recent months, where house prices have been rising more rapidly than other consumer prices. RPIJ inflation was up, not down, in January, going from 2.0% to 2.1%, as it was. Andrew Baldwin

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