Mortgage prices are already falling and there are indications the Bank of England could cut interest rates again this year making a good case for buyers to wait it out in the hope of further price reductions to mortgages.
But new research by mortgage adviser, Alexander Hall, has revealed this tactic could see homebuyers thousands of pounds worse off by the end of the year.
It’s all down to house prices and stamp duty. Forecasts suggest house prices will grow this year and stamp duty thresholds are also being raised on 1 April.
Alexander Hall’s analysis showed the cost of stamp duty on the current average house price of £268,087 was set to climb by £2,500, from £904 to an average of £3,404 when the current relief thresholds are raised.
Mortgage rates forecast to fall
With the deadline so close, anyone who isn’t already most of the way through their home purchase, will be set to pay the new stamp duty rates.
For those people there may be a temptation to wait until mortgage rates fall even more to offset the stamp duty cost. And, the good news is, rates are forecast to decrease, reducing from the current average of 4.27% to 3.63% by the end of the year, said Alexander Hall.
This would mean the average homebuyer would see their monthly mortgage payment fall from £1,164 per month to £1,127. This is a saving of £37 per month or £900 over a two year fixed-term.
But there’s a problem – the average house price is set to climb by 3.5% – from £277,470 versus the £268,087 today. This would raise the amount required for the average deposit, swallowing up the mortgage savings made.
What’s more Alexander Hall said the cost of stamp duty was likely to be more than the reduction to mortgage rates.
How much more would a buyer pay if they waited?
The analysis shows currently, the average homebuyer today needs a mortgage deposit of £53,617. Meanwhile, from 1 April, will pay £3,404 in stamp duty.
If they waited until the end of the year, Alexander Hall found, the average increase in the cost of a mortgage deposit could see them pay £1,877 more compared to today. Their stamp duty costs are forecast to climb by another £469.
It means homebuyers waiting until the end of the year to buy a home would pay £2,346 more in mortgage deposit costs and stamp duty versus the £900 they could save on a two year fixed-term mortgage.
Stephanie Daley, director of partnerships at mortgage advisor, Alexander Hall, said: “Whilst we’re still a few weeks away from the stamp duty deadline, the reality is that unless you’re nearing the end of your purchase, you’re unlikely to complete before 1 April and this means you’ll need to pay a higher rate of stamp duty.
“It’s a considerable jump, with the average homebuyer in England set to pay £2,500 more, and so it’s understandable that with interest rates expected to fall further this year, some buyers may choose to sit tight in anticipation of improving mortgage affordability.
“However, doing so could well cost you more, as 2025 is forecasted to be a far more buoyant year for the housing market. With house prices likely to climb, you may well find that choosing to wait it out could see you pay more for both a mortgage deposit and in stamp duty, versus the savings you’re set to make on your mortgage repayments.
“The good news is that many lenders are already reducing their rates due to the greater degree of market positivity that has materialised so far this year and, by acting now, you can not only secure a more favourable rate, but you can also avoid any future increases to purchasing related costs.”
