Broker Guide: First-time buyers and SDLT

Broker Guide: First-time buyers and SDLT



Traditionally, the market begins to see a boost in activity in January following the Christmas lull and with stamp duty set to rise in March, Bridging & Commercial wanted to find out whether this will mean there will be more calls for bridging finance from first-time buyers (FTBs) who are trying to act quickly before the tax exemption deadline.

The Government's holiday on Stamp Duty Land Tax (SDLT) is coming to an end on Saturday 24th March 2012 and although SDLT is not directly associated with bridging finance the continued lack of lending from High Street banks means that FTBs are still in need of financial assistance, particularly for their deposit and legal fees.


SDLT mitigation schemes come in a variety of forms but all serve a common purpose: to minimise the amount of Stamp Duty paid when purchasing property or land. They are most usually associated with high net worth individuals who, many would argue, are the very people who can afford to pay the full amount of tax.


Christian Faes, Managing Director at Montello, told us what he thought about SDLTs, stating: “We have seen a number of SDLT 'minimisation' schemes over the last few years. It seems that most of these have been closed by the government. Generally speaking we would prefer not to be involved with any such scheme.”

Bob Sturges, Head of Communications at Omni Capital, explained: “While undoubtedly controversial, SDLT mitigation schemes are legal, legitimate and operate in the full knowledge of the authorities. Whether this continues to be the case in an era of ‘shared austerity’ remains to be seen, but bridging providers will, from time-to-time, encounter them.”

There are a couple of SDLT bands including the “first time buyer” relief for properties where the purchase price does not exceed £250,000. But, with many FTBs finding it hard to get onto the property ladder at the moment the news that the SDLT holiday is coming to an end will certainly make FTBs take notice.

Last week, Wendy Evans Scott, President of the National Association of Estate Agents, said: “First-time buyers are key to a healthy property market. We hope to see the number of people completing the purchase of their first home continuing to increase through February and March, as many first-time buyers are keen to purchase their first home before the tax exemption deadline.”

Experts have already warned that 2012 will be a tough year for FTBs trying to get a mortgage, despite the promise High Street banks have made to try to increase the number of cheap deals that are available.


Bob Sturges told B&C: “The single biggest challenge currently facing would-be FTBs is securing a mortgage. With lenders demanding large deposits and applying strict underwriting terms, most potential FTBs simply cannot meet the necessary conditions to get their feet on the property ladder.


“While the government’s Stamp Duty holiday has doubtless helped a few FTBs realise their dreams, it has been a case of too little, too late to make a material difference. Industry commentators are unlikely to be surprised by this, recognising as they should the need for politicians sometimes to engage in ‘gesture politics’.


“Depressingly for FTBs, there is little prospect of change on the horizon: banks will continue to hoard their cash, and are unlikely to relax anytime soon their current lending stance to those perceived as higher- risk customers. The reintroduction of Stamp Duty for FTBS will only exacerbate an already difficult situation. But bad news for them is good news for the rental sector and, by association, all those involved with Buy-to-Let (BTL). An unintended consequence therefore may be to provide a further fillip to BTL investors, intermediaries and lenders, including those providing bridging finance.”


We asked a number of lenders whether they were currently experiencing an increase in enquiries from FTBs who want to act quickly to avoid paying SDLT on their first home purchase.

Laurence Goodman, Managing Director Bridgebank Capital, told us: “Bridging lenders tend not to see a high volume of applicants from FTBs, so we haven’t seen an increase in enquiries overall.”

However, others disclosed that they have seen an increase in enquiries from FTBs. Richard Deacon, Sales & Marketing Director at Masthaven, said: “There has been an increase in enquiries from FTBs, although what I think it is down to is the introducers thinking outside the box and looking for different ways to assist their clients.”


Bob Sturges described to us the complexities of SDLT. He said: “By their very nature, SDLT mitigation schemes add a layer of complexity and extra cost to any bridging deal. They usually come to light when the lender’s solicitor enquires of the borrower’s how the Stamp Duty is to be paid. Frankly, this is too late. It may not be a deal-breaker, but it will certainly slow the whole process. Brokers should therefore routinely ask their high net worth clients if such schemes are to be used – the earlier the better, as such knowledge will help speed matters along.”


With landlords and property investors looking more and more at bridging finance, especially in regards to the buy-to-let market, there are lenders who only like to work with the more established landlord.

Some lenders believe the SDLT holiday coming to an end won’t have a big influence on the bridging finance market. Christian Faes explained that the vast majority of bridging finance is within the unregulated market, and not concerning home owners. He said: “The sizes of the transactions that we focus on, and the general profile of our borrowers at Montello, are certainly not first time buyers - our core market is on sophisticated landlords or experienced property professionals.”

Laurence Goodman, Managing Director Bridgebank Capital, explained that the end of the tax exemption won’t have an effect on their business as, “Our deals originate from predominantly highly experienced property entrepreneurs so SDLT isn’t a material factor, it’s an accepted purchase tax acknowledged by the buyer in the transaction.”

James Bloom, CE at Regentsmead, told us: “I believe this [SDLT holiday ending] will slow the whole market up even further, at a time when mortgages are very hard to obtain to make the cost of moving more expensive for first time buyers is crazy. The government should be doing anything it can to get the housing market moving and given the stagnation in the mortgage market they should certainly be looking to extend SDLT relief.”

Speaking on the SDLT expiring, Stewart Barnes, Director at Portman Finance, said: “We consider it ill-judged given the weak housing market at the moment. We all know First Time Buyers are the lifeblood of the market and anything that encourages them must be positive for the whole market. If it is a cost issue then maybe the Government should look at curtailing other less useful schemes such as ‘First Buy’, that only appears to benefit large house builders rather than stimulate the whole market. With the mortgage market slowly starting to offer an improved range of products, now is not the time to make the market generally tougher.”


Bob Sturges also explained: “Anecdotally, it is claimed that as many as 40 per cent of all high-end property deals in prime central London postcodes involve the use of mitigation schemes. Maybe, but we at Omni Capital have seen only a handful in the past year. But the experience has been instructive, if not always profitable.


“As a lender, we do not involve ourselves deeply in the nuances of SDLT mitigation schemes. Rather, we outsource this specialist task to our retained solicitors. They inform us as to the scheme’s legitimacy and of any associated risks – including liability for the full gross value of the Stamp Duty in the unlikely event we are forced into a repossession situation. Such advice allows us to lend with a degree of confidence, and secure in the knowledge that our loan will take proper precedence.


“So long as mitigation schemes are permitted by the tax authorities – and who knows how long this might be – it is a sensible precaution on the part of both brokers and lenders to have in place procedures to manage their implications.”


Stewart Barnes added: “The most obvious and direct impact that this could have on the bridging market will be the effect on repayments. A lot of bridging loans rely on the sale of a residential property to repay. If the market slows then we could see this pushing repayment times out even further which will inevitably increase costs to the borrower.”

After the tax exemption has come to an end FTBs will face a tax of one per cent on house purchases between £125,000 and £250,000, and a three per cent tax on purchases over £250,000.

SDLT on residential properties over £1 million is currently charged at 5 per cent, equating to £50,000. With the smallest minimum loan amount amongst some of the bridging lenders in the region of £25,000 to £30,000 this could be an ideal place for a broker to source funding for their clients.

One of the biggest hurdles that FTBs face when it comes to mortgages though is raising an adequate deposit for a property, which is where bridging finance can help in a quick turnaround time.

So, with less than two months to go until the deadline, prospective FTBs are starting to look at applying for their mortgages now, especially when taking into account that applications take between three and four weeks on average to process. Despite not the main source of business, bridging lenders may therefore see a number of increased enquiries over the next few weeks from brokers whose first-time buyer clients are looking for financial support quickly in order to purchase a property before the tax exemption ends.

Therefore, if one of your clients fits the criteria needed for the first time buyer relief band, then now is a good time to look into it more and also see if anyone will accommodate or design a product for this. However, it must be said that one must be careful when dealing with SDLT mitigation schemes as there are many complications in terms of compliance and legals – so make sure you read through everything first!

What do you think of SDLT mitigation schemes?

By Jason McGee-Abe

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