Stamping out excess mortgage fees for first-time buyers

The Royal Institute of Chartered Surveyors are pushing for a change in the current regime governing house buying, deeming it 'unfair' and 'inefficient'. If they are successful, it could mean that first-time buyers and less affluent pensioners will be exempt from paying stamp duty, and those buying houses priced at under £1m will pay significantly less tax.

Stamp duty – currently between 1% and 4% of the house price, depending on value, is an unpopular tax due to soaring house prices in recent years. The average price paid on stamp duty has risen 60% in just the last 5 years. The threshold at the moment is £125,000, meaning that if your house is worth less than this, you won't pay duty. On property worth £126k - £250k, duty is 1%. You must pay 3% if the house is worth between £250k and £500k, and on property over £500k, the duty is 4%. Because the majority of houses sold recently fall into the £126k+ price range, many first-time buyers are up in arms at this extra cost.

The new scheme proposed by the RICS calls for the thresholds to be raised, and homes valued up to £150k paying no stamp duty, and the Council of Mortgage Lenders are urging this to be raised even further, to £250k, after which a 2.5% duty will apply. It may not sound like much of a decrease, but on a home costing £250k that 0.5% will save you £1250.

For the moment, the mortgage market is stagnant. Because of the high house prices and legal costs, few can afford to buy, and because of the threat of negative equity few can afford to sell or drop their asking prices. Currently, a first-time buyer can expect to need an average of £60k as a deposit on a new house, plus £1750 in stamp duty alone.

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But it's not all bad news. There are still affordable mortgages to be found by shopping around. If you already have substantial savings, perhaps look at offset mortgages as a way to reduce costs. Even if you're just looking to remortgage, make sure you look around for the best deal.

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