How will the changes to stamp duty thresholds affect first-time buyers?

Stamp duty rates will change 1 April 2025, and it’s particularly bad news for first-time buyers. On that date (is there any irony in the choice of April Fool’s Day?), the temporary increase to all levels that came into force September 2022 will come to an end. Rates will revert to their previous levels, which for first-time buyers means the nil-rate will return to £300,000.

Intended to support the housing market in the midst of a financial crisis, by reducing the up-front costs of buying a home, such support is apparently no longer deemed necessary.

The degree of impact this change has on first-time buyers depends, of course, on where they are buying their first home. The average house price, according to the latest Land Registry data (November 2024), is £306,494 in England, £219,446 in Wales, and £195,036 in Scotland – although, according to figures produced by Rightmove in January, the average UK asking price (all buyers) now stands at £366,189.

Within England, those most affected by the change will be first-time buyers in London, the South East, the East, and the South West. That’s not to say the impact will be felt elsewhere, of course. And depending on how the market evolves, the impact will likely be felt by more and more buyers in the months and years ahead.

True, interest rates are falling. However, that just makes mortgage payments more affordable. For completion dates from 1 April, if the price of someone’s dream first home happens to equal the UK average according to Rightmove, they will have to find an extra £3,309 to pay the stamp duty. That’s a considerable burden, and puts additional strain on the already major challenge of saving for a deposit as well as all the regular costs and fees.

For some, it will make getting on the property ladder that much harder. Perhaps forcing them to make painful decisions. Make sacrifices.

It’s possible, of course, that many will simply turn to a higher LTV to offset the burden of stamp duty, reducing the deposit they need to provide.

That begs the question: is a consequence of this going to be a sustained upward LTV trend? Many think it is a likely effect of the stamp duty rates reversion. And UK mortgage data from Uswitch seems to support this, suggesting as it does that the number of mortgage completions at over 90% LTV could increase rapidly between 2024 and 2025.

Although we may well see a resurgence in 95% LTV mortgages as the year progresses, anything higher is unlikely to take hold. The government’s proposed 99% mortgage scheme, which had been widely anticipated for launch in the 2024 spring budget, ended up being scrapped. And there are many in the industry who think that’s a good thing, although a few 99% mortgages did reach the market from high street lenders.

Although certainly helpful to first-time buyers who are struggling to get a deposit together, and potentially even more so given the changes to stamp duty, misgivings continue to be voiced about the 99% ‘experiment’ – not least the greatly increased risk of negative equity.

One thing is certain: it is more important than ever for lenders to offer innovative and responsible solutions for first-time buyers, not only to help mitigate the impact of stamp duty but also to maintain growth. Whatever roads are taken by both first-time buyers and the mortgage industry in 2025, it is certainly shaping up to be a pivotal year.

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