First-time buyers in parts of London will have to find an additional lump sum of almost £12,000 after April this year, as new stamp duty rules come into effect. That’s on top of the £124,700 of the average starter home deposit in the capital.
Hackney, Haringey, Wandsworth and Richmond-upon-Thames are estimated by Hamptons to be the boroughs where the typical first-time buyer is likely to be most affected by the changes needing to fork out an additional £11,250 in property tax than they do at the moment.
This comes after Rachel Reeves announced plans to lower the threshold at which first-time buyers start to pay stamp duty from £425,000 to £300,000 this April. The price of a property eligible for first-time buyer stamp duty relief will also fall from £625,000 to £500,000.
This means that someone buying a first home costing £500,000 will now pay £10,000 in stamp duty: 0 per cent on the first £300,000 and five per cent on the remaining £200,000. Until April they will pay £3,750.
Anyone else buying their primary residence will start to pay stamp duty at £125,000 instead of £250,000 where it had been set, reinstating the bands in place until the Truss government’s mini Budget of September 2022.
The number of first-time buyers set to pay stamp duty after April 2025 is set to double to 42 per cent.
How stamp duty changes will affect Londoners
Inevitably, these changes are likely to have the biggest impact in London where first homes cost the most, with averagely priced starter homes in many boroughs above £500,000 and so not eligible for any stamp duty relief.
In cheaper London boroughs where the average first-time buyer would have avoided paying any stamp duty at all because starter homes cost less than £425,000, all will now be liable to pay some property purchase tax.
In Hackney, where first homes cost an average of £555,440, the new stamp duty bill will be £17,770, a hefty increase on the current bill of £6,520.
According to Hamptons, just seven per cent of sales in the borough fell below the current threshold of £300,000, while 42 per cent would not have qualified for any stamp duty relief with prices over £625,000.
Haringey buyers will see the same cash increase to their tax rate, up from £3,930 to £15,180 for a starter home (average price £503,580).
Interestingly, the two boroughs that will see stamp duty rates for first-time buyers change the least in April are the cheapest (Barking and Dagenham, average price £317,950, where stamp duty will rise from £0 to £900) and the most expensive (Kensington & Chelsea, where stamp duty on the average £1.067million first home will stay the same at £50,480).
Indeed 79 per cent of sales in Kensington & Chelsea were worth more than £625,000 and so were liable for the full stamp duty payment.
Croydon and Havering will be the next least-impacted, requiring £1,570 and £2,480 extra respectively.
Difference in stamp duty before and after April 2025
While the changes will certainly help those buying in areas with lower house prices – indeed, three in five will avoid paying this extra cost altogether – it’s not hard to see why London will be one of the worst-hit.
Data from Rightmove suggests that the average asking price for a first home in London is £500,066 compared to just £132,854 in the North East with general house prices increasing across the board by 22 per cent since November 2017.
“It’s positive that most first-time buyers will pay no stamp duty from April, but these changes will hit those buying over £300,000 in southern England the most where buying costs are already high,” explains Richard Donnell, executive director at Zoopla.
“This will reduce buying power and market activity at a local level. Stamp duty is a big tax on home-movers in southern England where affordability problems are already a major challenge.”
But some commentators pointed out the effect stamp duty, or the reduction of it, can have on house prices, with the stamp duty holiday introduced by Rishi Sunak during Covid leading to significant price rises as frenzied buyers rushed to complete home moves during the holiday window.
Joe Bickerton, associate director of sales at Hamptons in Blackheath, comments: “While the looming stamp duty changes are causing understandable concern among first-time buyers, it’s crucial to maintain perspective.
“The rush to beat the deadline could lead to increased competition and potentially inflated property prices.
“However, when comparing the immediate hit of an £11,250 stamp-duty charge to the long-term impact of paying £20,000 or more extra on a property price spread over a 30-year mortgage, the latter may actually be the more financially prudent choice.
“First-time buyers should carefully weigh their options and not let the pressure of a deadline force them into hasty decisions that could have long-lasting implications.”