Mortgage Market Turbulence and Your Questions
Are you feeling overwhelmed by the recent turbulence in the mortgage market? Do you have questions regarding your mortgage journey? Don’t hesitate to reach out! Send us your inquiries, and one of our experts will provide you with a response. Below, Nick Mendes, mortgage technical manager at John Charcol, addresses a reader’s question. If you’d like to ask a question, email us at [email protected].
Question:
I’m a first-time buyer on the verge of purchasing my first flat. I’ve made an offer, but I fear I might miss the deadline to pay a reduced amount of stamp duty by the end of March. Is there a way for me to expedite my purchase completion before the month ends? A friend suggested exploring “bridging finance.”
Answer:
For first-time buyers eager to finalize their purchase before the impending stamp duty changes scheduled for April, it is crucial to have a pragmatic view of the home-buying timeline. While mortgage applications and property transactions can occasionally progress rapidly, the reality is that completing a purchase within the next few weeks is highly improbable unless you are already well advanced in the process.
For those still in the initial phases, the deadline is, unfortunately, too tight to meet. However, for buyers who are further along in their journey, or those contemplating future purchases with tight timelines, there are options available to accelerate the process—such as bridging finance, as your friend mentioned.
The upcoming alterations to stamp duty mean that first-time buyers in England, who currently enjoy an exemption on properties valued up to £425,000 and a reduced rate on purchases up to £625,000, will soon encounter a new tax threshold. Starting from 1 April 2025, the exemption will revert to the previous level of £300,000, with a maximum purchase cap of £500,000.
This change signifies that those purchasing within the range of £300,000 to £625,000 will incur additional stamp duty expenses once the new rules come into effect. For instance, a first-time buyer today acquiring a property priced at £425,000 would pay no stamp duty; however, under the revised regulations, they would face a tax liability of £6,250. At the higher end, a purchase of £625,000 would result in a tax obligation of £8,750. For buyers stretching their financial limits, this can significantly affect affordability.
At this point, anyone who has not yet submitted a mortgage application is highly unlikely to complete their purchase before April. A mortgage application typically requires at least two weeks for processing and approval, in addition to the time needed for conveyancing, property searches, and legal checks. For buyers already deep into the process, where contracts are nearing exchange, there may still be a chance to meet the deadline, provided that all parties involved—solicitors, lenders, and estate agents—are working efficiently to expedite the transaction.
For those close to completing but needing to hasten the process, or for prospective buyers looking to act swiftly under pressing timelines, bridging finance could be a viable option. Bridging loans offer short-term borrowing solutions that allow buyers to finalize a property purchase before their primary mortgage is secured. These loans are especially useful in situations where time constraints, such as tax deadlines or seller pressures, come into play.
A bridging loan provides the necessary funds to acquire a property upfront, enabling the transaction to be completed without waiting for a traditional mortgage. Once the purchase is finalized, you will need to focus on repaying the bridging loan, making it essential to have a clear exit strategy, such as an approved mortgage offer or the proceeds from selling another property.
While bridging finance offers speed and flexibility, it is important to note that it carries significantly higher costs compared to a standard mortgage. Interest rates on bridging loans generally range from 0.5% to 1.5% per month, which can quickly escalate if not repaid promptly. Additionally, there are arrangement fees and potential valuation costs to consider. For those who are already close to exchanging contracts, it may be worth investigating as a last-minute solution, but such a decision should not be made lightly. Consulting a specialist mortgage broker is vital to grasp the costs, risks, and whether this route aligns with your personal circumstances.
For those just embarking on their home-buying adventure, the stamp duty deadline is now out of reach. However, this should not push buyers to rush or make impulsive decisions. Instead, it is advisable to consult with a mortgage broker who can help you navigate your borrowing options and secure an Agreement in Principle. Selecting a proactive conveyancer who can efficiently manage the legal process will also contribute to a smoother transaction.
While the window to complete before the stamp duty changes is now exceedingly narrow, buyers can still prepare themselves for a seamless and efficient purchase. Those already in the process might be able to push for quicker completion, while others can take the time to carefully plan and explore their financing options. Seeking professional mortgage advice remains the most effective way to navigate the home-buying journey, ensuring informed decisions and a well-structured financial plan for the future.
