The initial stamp duty holiday deadline of 30th June is fast approaching, and many hopeful homebuyers will unfortunately not complete their purchase in time.
The stamp duty holiday, which was introduced in July 2020, saw the stamp duty land tax (SDLT) rate fall to zero percent on properties up to £500,000, which is a huge tax saving of up to £15,000!
This fantastic money-saving opportunity has sent the property market into a frenzy and put additional pressure on the likes of mortgage brokers, high Street banks and conveyancing solicitors attempting to push as many property purchases over the line as possible.
Sadly, the June 30th deadline is now just a few weeks away, thousands of homebuyers are rightly concerned that they will not complete their purchase in time and could be faced with a hefty SDLT bill.
From 1st July to 30th September the tax relief threshold will drop from £500,000 to £250,000. This means homebuyers will pay 0% SDLT on the first £250,000 of their property purchase and 5% SDLT between £250,000 and £925,000. The normal SDLT tax rates will take effect from 1st October 2021.
A bridging loan could be the solution you are looking for.
A bridging loan is a short-term property loan designed to bridge the gap between the sale of one property and the purchase of another.
If you have not yet sold your current home and there is a good chance that you’re not going to meet the deadline, then a bridging loan can provide a quicker alternative and potentially save you thousands in tax.
On average it takes 3 months to complete a property purchase, but it can take just 14 days to complete using a bridging loan.
After you complete your purchase and sell your other property sells, you can refinance onto a conventional residential mortgage and repay the bridging loan plus fees and interest.
Things to consider if you use a bridging loan.
If you are buying a property before you have sold your current home, your new property purchase will be considered a second home. If you are a UK resident who is purchasing a second home or investing in a buy-to-let property, you are subject to a 3% SDLT surcharge which you will have to pay at the time of completion. However, if you sell your existing property within 3 years you can claim a SDLT refund for the 3% surcharge.
Bridging finance is expensive when compared to conventional mortgage lending. It is vital you speak with an experienced broker so ensure you understand the fees and risks involved.
However, when taking all these factors into account it could still be financially beneficial for you to use a bridging loan to complete before 30th June not only securing your new home but also in saving thousands of pounds in tax.
Affinity Group can assess your individual circumstances and advise on how much it will cost you to take out the bridging loan versus how much SDLT you would pay if you completed your property purchase between 1st July and 30th September. This will help you to make a well-informed decision and compare the potential tax saving against the costs associated with a bridging loan.
To learn more about how a bridging loan could help you to meet the stamp duty holiday deadline please give us a call on 01702 337 003.