The advantages of being a first-time buyer

Congratulations! You’ve been saving for a deposit, looking at what the market has to offer and are approaching a new milestone – you’re ready to buy your first home. Yet, despite selecting your favourite London location and dreaming of paint colours for the walls, you might still feel there’s a property ‘mountain’ to climb.

However, you should remember that you’re in a stronger position than second or third-time buyers for several reasons. Not convinced? Here are four ways why you should celebrate being a first-time buyer and remain confident in your position.

1.     Raising funds is easier

Unlike second-time buyers, you’ll have access to several Government-backed schemes that will boost what you can afford to pay for your first home. They also take London’s premium price tags into account. So, you won’t be penalised for living in this amazing city.

Second-time buyers are excluded from this option, so they may find it difficult to match your bid if, for example, they want to relocate to a pricier area or borough. It makes financial sense to utilise the subsidising schemes open to your circumstances.

These budget-boosting schemes include:

·       Shared Ownership – for London-based households earning under £90,000

·       First Homes Scheme – generally applicable on London homes up to £420,000

·       100% Mortgage Products - No deposit required – Not currently available on new build

 2.     You can complete the sale quicker

We’ve all seen those property television programmes or heard ‘horror stories’ where buyers have lost out on their perfect property due to ‘the chain’. This complex scenario includes the person(s) who are:

·       buying – with no property to sell

·       buying - with a property to sell

·       selling – with no intention to purchase property.

Whilst a chain is made up of at least three parties (including these buyers and sellers), you must also rely on everyone including the mortgage lenders, surveyors, estate agents and conveyancers completing ‘their part’ on time.

Understandably, this situation seems fraught with potential let downs. But that’s where your first-time buyer status will simplify things. You are only dealing with one property (the one you want to buy) and so will only encounter half of the stress and paperwork. It’s a scenario many property owners would like to be in.

Also, having a short or no rental notice to give makes you the buyer’s dream interest. You can offer flexibility which will accommodate their own buying schedule. This reassures them that you won’t have a sale of your own fall through unexpectedly – this is a real prospect amongst second-time buyers, that can cause severe disruption. Discover some reasons why a chain may collapse and you’ll feel renewed confidence in your strength as a first-time buyer.

3.     A lower offer may ‘clinch the deal’

This welcomed flexibility means you can reasonably submit a lower offer. One poll found that “74% of all sellers would definitely accept or consider accepting an offer 5% below the asking price if the buyer was in a strong, chain-free position to proceed”. This acceptance rate increases to 88% for properties valued over £500,000 (House Buyer Bureau).

With average house prices in London reaching £656,000 in October 2022, it’s feasible that you could save approximately £32,800 on properties at this price. With so many costs to cover, you could considerably lighten the amount that you need to repay your mortgage lender.

You will only be a first-time buyer once, so it pays to use your chain-free position wisely when negotiating the price of the property you want to buy. As moving home is often cited as one of the three most stressful life events, you could save the vendor stress and sleepless nights. Remember, many advice sites such as Which advise sellers to “choose a buyer who isn't in a chain themselves, such as a first-time buyer”.

For these reasons, you could be the most attractive buyer in the bidding process. Just ensure that you have secured an AIP (Agreement in Principle) for a mortgage beforehand.

4.     There’s stamp duty relief available – to most first-time buyers

Many first-time buyers are also unaware that they qualify for Stamp Duty Relief. This places them in an enviable position to existing property owners. In recent months you may have heard this tax being discussed in the press, but what exactly is Stamp Duty and what do you need to know as a first-time buyer?

Stamp Duty Land Tax (SDLT) is paid to HMRC by the buyer, typically when they:

·       Purchase a freehold property

·       Purchase a new or established leasehold

·       Purchase a house or flat through a shared ownership scheme

·       Commence a mortgage or buy a share in a house – i.e. you have a property transferred in exchange for payment (Gov.UK).

The standard SDLT rates on properties bought after 30th September 2021 are:

·      0% on property or lease premiums or transfer values of up to £125,000

·      2% payable on the next £125,000 – the portion between £125,001 to £250,000

·      5% payable on the next £675,000 – the portion between £250,001 to £925,000

·      10% payable on the next £575,000 – the portion between £925,001 to £1.5 million

·      12% on any remaining amount – for the portion over £1.5 million (Gov.UK).

However, this assumes that you will only own one property after purchase.

Uniquely, first-time buyers will avoid the need to pay stamp duty on the same residential properties priced at £300,000 or under. This might not always cover the value of many London properties, but it’s worth remembering that you will pay a reduced rate of 5% stamp duty on homes secured for £300,001 to £500,000. Yes, there is a ceiling rate for SDLT relief capped at half a million pounds.

It is necessary to send an SDLT return (even if you don’t owe any stamp duty) on properties that you purchase for £40,000 and above (although exemptions apply). Strict penalties exist for failing to file within 2 weeks after the date you complete on your first home.

Thankfully, most agents, conveyancers and solicitors will submit this and apply for the first-time buyer’s relief or pay the designated fee for you – removing this task from your ever-growing ‘to-do’ lists.

Looking to find your first place (here in London) and need further advice about these issues? Simply email us at hello@chameleon-group.co.uk