First-time buyers rush to beat stamp duty deadline

Yet while lower house prices and a flurry of new incentives from lenders have delivered a boost for would-be homeowners, experts have warned that the obstacles to the bottom rung of the housing ladder remain formidable.

The 1 per cent stamp duty charged on properties worth between £125,000 and £250,000, lifted in March 2010, is being reintroduced on 24 March unless Chancellor George Osborne extends it in his budget three days prior.

That deadline has triggered a minor surge of first-time buyer activity since the turn of the year. Mortgage approvals hit a 25-month high in January, according to Bank of England figures out this week, due primarily to a spike in demand from first-timers.

That came on the back of a year in which first-time buyer numbers in Scotland slumped to their lowest level since 1976. Just 17,000 first-timers bought homes north of the Border in 2011, according to Bank of Scotland, less than half the recent 39,100 peak in 2006.

But the end of the stamp duty holiday puts another dampener on a market in which securing an affordable loan is still a challenge.

Scott Brown, estate agency partner at Warners, said: “In Edinburgh and the other Scottish cities it has made a difference to people buying their first homes, as many first homes in Scotland’s cities do cost more than £125,000.

“Going forward, it will be an extra expense that many first-time buyers have to find too – that said, people are now already used to finding a larger deposit to buy their first home than they used to, say, five years ago, and they’ll just have to budget for this extra cost, too.”

HSBC estimates that almost 90 per cent of people buying their first home in the last two years have not paid stamp duty, with half buying a home for between £125,000 and £250,000 and therefore benefiting from the temporary exemption.

Those beneficiaries include around 10,000 first-time buyers in Scotland, according to figures from Santander.

But while the end of the exemption will push up the costs facing many first-time buyers, experts claim that, even under tight lending conditions, the coming months present a good opportunity to get on to the housing ladder.

Michael Maloco, of Dunfermline estate agents and solicitors Maloco & Associates, said: “If further proof were needed that now is an ideal time to get on to the property market, the recent report from the Bank of Scotland showing that the average monthly mortgage repayment on a three-bed home is now £510 as compared to £540 to rent the very same property makes for interesting reading.”

Rising rents and a potent combination of inflation and low interest rates mean that stumping up a deposit is a challenge for most would-be buyers.

But for those who can produce a downpayment – whether from savings, a windfall or from the bank of Mum and Dad – there has been an improvement of late in the attitude of lenders towards first-time buyers.

There are now 49 mortgages for first-time buyers at 95 per cent loan-to-value – double the amount a year ago – and 343 loans requiring just a 10 per cent down-payment, compared with 214 previously, according to Moneyfacts.

However, Maloco believes some potential first-timers are put off by the perception that they won’t be able to get a good deal, without checking out their chances first. “I see and hear of first-time buyers that are also a bit jaundiced in their views of lenders and who, despite those shiny inviting 90 per cent LTV deals, feel that their own chances of bagging one are remote and so just don’t bother to apply.”

The rise in the number of first-time buyer deals on the market doesn’t necessarily mean lenders are easing their criteria significantly. There has been some innovation aimed at putting homes in reach of more first-time buyers, however. Here are some examples:

• The lend-a-hand initiative promoted by Lloyds TSB Scotland allows first-time buyers to pay a deposit of just 5 per cent and get a three-year fixed rate of 4.69 per cent. The catch is that the borrower’s parents, grandparents or friends must set aside another 20 per cent of the property value in a Lloyds savings account, where it must remain until the buyer has at least 10 per cent equity in their home.

• Bank of Scotland – also owned by Lloyds Banking Group – offers a fee-free mortgage for first-time buyers that comes with cashback of £500. Existing current account customers, including case study Ryan Paterson, get an additional £150 cash back on completion. The mortgage is a two-year fix at 5.99 per cent for buyers putting down 10 to 15 per cent of the property value.

• Nationwide’s save-to-buy deal offers a three-year 95 per cent LTV loan with a rate of 6.14 per cent to borrowers who have deposited at least £50 a month into a save-to-buy Isa for at least six months. It also includes a cashback element.

• HSBC, which has pledged £3 billion of lending to first-time buyers in 2012, recently launched a best buy 90 per cent LTV mortgage with a 3.84 per cent two-year discount rate, with no fees. There’s also a fixed rate of 4.49 per cent for two years, with a £599 fee.

• Clydesdale Bank’s regular home saver account pays up to £1,000 cash back to first-time buyers saving at least a 5 per cent deposit and taking a loan with the bank, one of few offering a 95 per cent LTV deal.

Many builders and estate agents have also unveiled incentives in an attempt to tempt first-time buyers back to the market.

One example is the £600 cash back offered by Warners to first-timers who buy before stamp duty kicks in again.

Brown at Warners said: “Luckily in the last couple of years stamp duty has been one challenge buyers have not had to consider. Unfortunately, this perk is now about to be abolished, leaving the burden to creep back in.”

Whether the return of stamp duty for those paying between £125,000 and £250,000 for their first home deters many from taking the plunge won’t be clear for some time.

But those holding off in the hope of house prices falling further may rue their reticence, claimed Andrew Stephen, head of property at Edinburgh-based law firm Murray Beith Murray.

“I would say that the market has flattened now and those intending to buy would be well to start looking now,” he said.