Wembley Property Market
What will the stamp duty cuts and interest rate rises mean for Wembley homeowners and landlords?
Last week the Bank of England increased interest rates to 2.25% and they are expected to be 3.25% by early next year. This increase will make the monthly mortgage payments more expensive for first-time buyers, an issue dubbed by some as the 'property affordability crunch.'
It will also damage the household budgets of homeowners coming off their fixed-rate mortgages in the next 12 months.
So how many homeowners are coming off their fixed rates in the next year?
Of the 7.97 million homeowners with a mortgage in the UK, 6.1 million of them are on a fixed-rate mortgage at an average rate of 2.04%. Industry statistics show around 1.3 million homeowners are coming off their fixed rate in the next 12 months.
The current crop of fixed-rate mortgage deals available today have already had the recent increase in the base rate ‘priced-in’ for weeks.
The cheapest 5-year fixed-rate today for a 65% Loan to Value re-mortgage (i.e., you are borrowing 65% of the value of your home) is a mortgage rate of 3.8% with Royal Bank of Scotland (RBS).
So, what will be the difference in mortgage payments between a 2.04% mortgage and a 3.8% mortgage?
Say an average Wembley first-time buyer bought their first home in November 2019 on a 25-year mortgage. They had a 3-year fixed-rate mortgage, and let's assume they fixed it at 2.04% (as mentioned above), meaning their fixed-rate deal finishes next month. They have £260,000 outstanding on their mortgage, and their Wembley house is worth £400,000. They would have been paying £1,107 per month for the last three years (assuming they took out a 25-year repayment mortgage).
On the RBS deal above, they will have to start paying £1,548 per month from November when they come off their initial rate – a rise of £441 per month in mortgage payments. That’s quite a rise and potential blow to their household budgets.
Yet if they pushed back the repayment term from 22 years to, say, 35 years, that reduces the payment to £1,120 per month – something to consider if you are re-mortgaging in the coming 12 months.
What will the stamp duty changes mean for
Wembley property owners?
PM Liz Truss and Chancellor Kwasi Kwarteng believe that cutting stamp duty will support economic growth by encouraging more people to move home or jump onto the property ladder.
Stamp duty also has other harmful side effects as it decreases labour market elasticity and curtails people from selling up and buying elsewhere, where the jobs are.
Also, stamp duty makes mature homeowners stay put in their large homes rather than downsizing. This reduction in stamp duty will encourage those mature homeowners to move, thus freeing up their large family homes for the younger families that need them.
The Chancellor doubled the zero-rate stamp duty band from £125,000 to £250,000, passing a stamp duty tax saving of up to £2,500 for all English homebuyers.
Also, tax savings are even more significant for first-time buyers, particularly in areas with high house prices, such as London and the South East. They can save a maximum of £11,250 in stamp duty – with a new zero-rate band of £425,000, based on a higher £625,000 spend cap (i.e., the house they buy can't be over £625,000 for them to qualify for the tax relief).
So, what effect will these stamp duty changes have on the Wembley property market? Looking at recent events in the local property market is the best place to start.
Of the 712 transactions in the Wembley area since June 2021, 94 were below £250,000. These would now be tax-free!
Unsurprisingly, most housing transactions in Wembley were above the £250,000 threshold, yet irrespective of that point, it’s a saving of up to £2,500 for all future Wembley homebuyers.
Anyone currently buying a house in Wembley and not yet completed on their purchase (completion is when you have paid the money for your home and collected the keys) will be in line to make this saving.
Wembley landlords purchasing buy-to-let properties will also save money with the stamp duty cut (but they will still be liable for their second home stamp duty levy of 3%).
Overall, this is a welcome move to help the Wembley property market.