Stamp Duty Explained, Everything You Need to Know Before an Extension Project, Plus More

Welcome to the April edition of the Town & Country newsletter.

This month, we investigate how Brexit might influence the value of your house, we explain Stamp Duty, we have a guide on everything you need to know when extending your home, and we reveal why the bank of mum & dad has loaned over £5bn a year.

Stamp Duty Land Tax Explained

It’s a phrase that landlords and buyers fear. But many do not understand how the tax works and how it applies to your property transaction. Simply, Stamp Duty Land Tax (SDLT) is a tax paid on any property purchase of more than &125,000.

The History of Stamp Duty
Stamp Duty was introduced in England in 1694 during the reign of William and Mary. It was used as a transaction tax to raise money for war against France and was applied to goods including hats, newspapers and patent medicines. Eventually the tax would only be levied on property transactions

Stamp duty was instrumental in the outbreak of the American War of Independence which was encompassed in their slogan “no taxation without representation”

Modern Day Stamp Duty

Up until 1997, home buyers only paid 1% tax on properties costing more than &60,000. Former Prime Minister and then-Chancellor Gordon Brown introduced a system of bands, meaning a higher percentage of stamp duty depending on the value of a property. At the time, the highest band was set at &500,000.

In the intervening decades, the lower and upper thresholds have been raised in response to rapidly rising house prices.
The biggest shock to the property market came in December 2014, when George Osborne abolished the slab structure and introduced progressive charges and increasing the levy on homes costing more than &937,000.

 

 

Whilst the government claims 98% of home buyers now pay less stamp duty than in the past, the new bands have been blamed for the slowdown of the property market.

Stamp duty must be paid within 30 days of buying the house, with talk of shortening the period to 14 days.

What Does Brexit Mean for the Value of Your Home

 For over a year there seems to have been endless talk surrounding the Brexit decision and its potential impact on the country and the property market has been no exception.

Article 50 has now been triggered by Prime Minister Theresa May and many are wondering how it could affect the value of their most valuable asset.

Many property experts believe that values will continue to rise despite Brexit, even if it is at a slower rate than usual.

Chief Economist for Nationwide, Robert Gardner offered his outlook on the market in 2017, stating that “Looking forward, house price prospects will depend crucially on developments in the wider economy, around which there is a larger degree of uncertainty than usual.”

Gardner also added, "But we continue to think a small gain (around 2%) is more likely than a decline over 2017 as a whole, since low interest rates are expected to help underpin demand while a shortage of homes on the market will continue to provide support for house prices."

There were concerns that the decision to leave the EU would have catastrophic effects on the housing market, however, the reality so far hasn’t been quite as drastic. After the vote in June of 2016, there were signs of a slowdown in activity, but in recent months many property experts and investors have been reporting a return to the norm.

CEO at eMoov, Russell Quirk, believes that it will be business as usual for UK property market, he said “Brexit has not managed to deter the UK property market. It’s bulletproof and teflon coated.

The only caveat is the prime London market that was overheated before and has been negatively affected by major Stamp Duty changes.”

Now that Article 50 has been triggered, the next stage is the impending negotiations and there are still plenty of questions around how all of it will play out, with some experts expecting to see no real change in the market until we have more concrete information.

Director of Residential Research at Savills, Lucian Cook, stated that “If the EU is open to constructive negotiations, the impact on sentiment will be limited to mild caution, whereas a more combative stance risks restricting activity to buyers and sellers who really need to move.”

A sentiment very much shared by Founder of Zoopla, Alex Chesterman, who also spoke on the potential effects, he said “Buying a home is one of the biggest and longest term decisions that people make so they tend to hold off making such important decisions in times of heightened uncertainty.

"2017 is unlikely to see any material improvement in sentiment until we have clarity around what Brexit actually means."

Whist no one is predicting the UK property market to crash due to leaving the EU, most are advising first time buyers and those looking to re-mortgage, to find a more long term fixed rate mortgage - ideally 5 years - to see you through the negotiations.

Extending Your Home: What You Need to Know

 If you're a homeowner then there is a good chance at some point you've considered extending your home. The fact is, moving home can be quite costly, especially when you throw stamp duty into the mix and sometimes it can be more cost effective to extend than it is to move.

There are many things to consider when extending a home and it can be quite a long process, but it doesn’t have to be stressful, you just need to ask yourself the right questions before you begin. With this is in mind, we’ve put together a quick guide on what you need to keep in mind before the construction starts.

Confirm your budget
One of the most important aspects to consider before you start this process is the budget. You need to decide as soon as possible, how much you are willing to spend and find out what type of extension that budget will get you. Be sure to remember that just like most house projects there will always be additional costs and hidden extras, so note down everything from the cost of materials to the planning permission and builder’s fees.

It is also worth thinking about how much value an extension will add to the current value of the home. If you have no plans to move out of your current home, then this may be less of a concern, but you should keep in mind how you will affect the home’s value, if you were to sell in the future.

Decide on your design
Once you’ve finalised your budget, you will now need to make a decision on the type of extension you’d prefer. The two most popular choices for the majority of homeowners are the conservatory and the loft conversion, as extra bedrooms and living space can really add to a home’s value.

 

After figuring out the type of extension you’re looking to build, you should then think about the design of your new space. If you have plans for a new bedroom, now is your chance to plan the best possible layout to accommodate the type of bedroom you’re looking for. Maybe you’re looking to build a child’s room with plenty of floor space, maybe you’re considering something suited more for adults with built in wardrobes, but whatever you’re looking for, now is time to work out the most suitable layout for your needs.

Find out about the limitations of your area
Depending on the location, there could be some limitations to the type of work you can carry out on your home. It’s worth checking if you live in a conservation area, these are typically located in more historic areas, meaning if the work on your home is not deemed to enhance or improve what is currently there, your design may be under scrutiny or you may not receive permission to begin your work at all.

Regardless of whether you live in a historic area or not, most areas will require planning permission before you can move ahead with the work on your home and it can take up to 8 weeks for your application to be approved, so it’s best to get organised as early as possible.

Research the regulations
In addition to needing permission to begin work on your home, you will also need to ensure that the work carried out meets any current building regulations. Take some time to properly research all the necessary regulations that apply to your extension, these include doors, windows, electrics, drainage, etc. so you can be positive that everything meets the legal standards.

Hire a professional
Once you have your budget confirmed, you’ve finalised your design and you received permission to get things started, you now need to hire a professional.

It can be tempting to try and save some money by taking the DIY approach and some of you may have experience with similar types of work, but unless you are a licensed professional, you shouldn’t try to tackle tasks such as electrics and plumbing by yourself. This is especially important when it comes to structural work, not only will this ensure it meets the necessary standards, but it will also provide you with peace of mind knowing that your extension won’t unexpectedly fall apart a few years down the line.

 

Gifting a Deposit Costs Bank of Mum & Dad £5bn

 The number of first-time buyers taking out a loan with the “bank of mum and dad” for financial help has hit a record high, according to new research.

A recent study performed by the Social Mobility Commission has suggested more than a third of homebuyers in England depend on assistance from their family.

The Social Mobility Commission was set up in 2010 and advises the government on social mobility issues in England.

Using the official data available, from 2013-2014, the study discovered that 34% of buyers needed cash or a loan from their parents, a rise of 14% when compared to statistics from 2010/11.

A further 10% of buyers relied on inherited wealth.

"Affordability problems mean that parents and other family members have a critical role in assisting their children to buy their first home, either by means of a gift of money or a soft loan," said the report author, Dr Paul Sanderson from Anglia Ruskin University.

The research also found the number of home owners among young families was “in free fall”.

The Rt Hon Alan Milburn, chair of the Social Mobility Commission, said: “The way the housing market is operating is exacerbating inequality and impeding social mobility.”

He added: “Owning a home is becoming a distant dream for millions of young people on low incomes who do not have the luxury of relying on the bank of mum and dad to give them a foot up on the housing ladder.”

According to statistics from 1990, as many as 63% of 25-29 year-olds owned their own property. By 2015 the number had fallen to 31%.

Savills performed a survey in December of last year, which found that just 20% of 25-year olds now own a house or flat.

The average price tag first-time buyers in England and Wales are paying now equals &200,000, according to the Land Registry.

Alan Milburn, a former Labour health secretary and now chair of the Social Mobility Commission, said: "Home ownership helps unlock high levels of social mobility, but it is in free-fall among young families.

"The way the housing market is operating is exacerbating inequality and impeding social mobility."

In an attempt to curb the first-time buyers crisis, former Prime Minister David Cameron started an initiative called the Starter Homes Programme. Buyers aged between 23 and 40 will be able to buy homes at a 20% discount on the value of the property.

The initiative is set to start in 30 areas of England and will apply to homes up to &250,000 in value or &450,000 in London.

The government’s February White Paper on housing laid out plans for incentivising councils to develop more specific house plans, to encourage smaller developers to build houses, and to allow more vertical building in urban areas.

The “bank of mum and dad” issue was first highlighted by Legal and General. According to their figures, a quarter of all mortgages in the UK last year were part-funded by parents, with the average amount given adding up to &17,500, and with a combined cost to parents of &5bn.