First Time Buyer Legal Guide – Part 2
In the first part of our guide we looked at the definition of a first time buyer and how it was possible to inadvertently lose that status, and thereby lose access to some of the financial benefits and options that first time buyers have. In this second part we look at some of those financial and other benefits to being a first time buyer; the three main ones which we will discuss being:
- Help to Buy ISAs
- Stamp Duty Relief
- Co-Ownership Scheme
A Help to Buy ISA is an amazingly useful tool for potential First Time Buyers, which allows you to gain a 25% boost to your own tax-free savings thanks to savings-based contributions from ISA and the Government.
So, for every £200 you save, you’ll receive a government bonus of £50, with the ability to earn a maximum bonus of £3,000 on savings of £12,000. If you are purchasing with a partner who is also a First Time Buyer they will also be able to open a Help to Buy ISA to be used against the purchase of the property, meaning that together you are eligible to receive a bonus of £6,000 in addition to your combined savings of £24,000. The bonus far outweighs any options for an interest baring savings vehicle and is tax-free.
The clock is ticking on Help to Buy ISAs however, with the scheme closing to new applicants on 30th November 2019. You can open a Help to Buy ISA with a deposit of as little as £1, and thus secure the abovementioned benefits for the future.
The Help to Buy website has a lot of useful information on eligibility criteria, savings plans, and a handy ISA calculator which allows you to work out the government boost to your own savings.
Stamp Duty Land Tax (SDLT) is a tax that is payable by the purchaser of a property that costs more than £125,000. The amount payable is worked out as a percentage against different bands of the value of the property, and the percentage rate payable is graded into bands as follows:
- 0% on properties between £0 – £125,000
- 2% on properties between £125,000 and £250,000
- 5% on properties between £250,000 and £925,000
- 10% on properties between £925,000 and £1,500,000
- 12% on properties over £1,500,000
So, if you are buying a property for £140,000 you will be required to pay:
- 0% on the first £125,000 of the property and
- 2% on the remaining £15,000, working out at £300 in Stamp Duty.
These rates apply to home movers or anyone who has ever previously owned a residential property. However, First Time Buyers are eligible for Stamp Duty Relief.
Stamp Duty Relief applies to purchases of residential property for £300,000 or less, provided that the purchaser intends to occupy the property as their main or only residence. The result is that the majority of first time buyers in Northern Ireland pay no stamp duty at all. The HMRC website contains a useful stamp duty calculator which allows you to see how much tax you will be liable to pay on your property purchase.
Please note that in the case of a joint purchase stamp duty exemption is only available where both purchasers are First Time Buyers. If one of the purchasers already owns or has owned a property the first time buyer relief will not be available. In the third part of our guide we will be looking at how a purchaser can be hit with a higher than normal stamp duty bill even though if they are a genuine first time buyer.
Co-ownership is a popular shared ownership scheme that allows you to buy as much of an equity interest in a property as you can afford, and Co-Ownership Housing purchase the rest of the equity of the property. You will pay a mortgage on your share of the house and pay rent to Co-Ownership in respect of the share they own. You then have the option to increase your equity share in the house by what is called staircasing, which means you can buy equity from the Co-Ownership in increments until you become the full owner of the property, or you can buy-out their interest in one single transaction.
The scheme removes the major hurdle of funding the deposit for the house purchase, and allows First Time Buyers to purchase a property that would otherwise be out of their price affordability range.
While the majority of Co-Owners are First Time Buyers, Co-Ownership has more flexibility in this regard, opening the scheme to people who have owned a house before provided they:
- Do not currently own any property or land
- Are not named on any deeds before their submitted initial application
- Settle all outstanding transactions from previous owned properties or previous relationships before their initial application
Your property conveyancing solicitor will act for both you and Co-ownership, and you will not be required to pay the main solicitor fee in respect of the purchase. This will be covered by Co-ownership and you will only be responsible for the outlays and any fee charged in respect of acting on behalf of your mortgage lender.
In the third part of our guide we will be looking at the legal implications of receiving financial assistance from a family member to help fund your purchase.