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Is average price of UK home just too far out of reach?

Published 12 March 2014 by

Buying your first home is such a huge dream for many of us that we’ll happily make sacrifices to our spending and carefully budget so we can save up the amount we need for a deposit. However, it seems that for increasing numbers of people, owning a property is just too far out of reach.

Figures from the Office for National Statistics this week reveal the average cost of a house in the UK rose to £250,000 in December last year. At a quarter of a million pounds, that’s a huge sum for anyone to think about paying out. But what makes this increase even more worrying – particularly for first-time buyers – is that it is on the 3% stamp duty threshold.

What is stamp duty?

Stamp duty is a tax paid on completion of most property purchases in the UK, and it can add a substantial sum to the amount you pay. If the house you have your eye on costs less than £125,000 you won’t be charged the tax, but if it costs between this and £250,000 you’ll have to pay stamp duty of 1%. So, if you’re paying £200,000 for the home, you’ll also pay £2,000 stamp duty.

This is where it gets complicated. If your dream home costs even a penny more than £250,000 – such as the average UK property price of £251,964, according to RightMove – but less than £500,000 you’ll pay stamp duty at 3%. So, on a £252,000 home, for example, you’ll also have to fork out £7,560 for stamp duty. That’s a huge sum – and the equivalent of squirrelling away £630 a month for a year.

You can find out more about stamp duty thresholds here.

What can I do?

If your dream is to buy a home of your own, don’t let this put you off saving and budgeting for it. The good news is that the average price paid for a new home by a first-time buyer at the end of last year is a long way off reaching the 3% stamp duty threshold. According to the official figures, people buying their first home paid, on average, £189,000 in December 2013.

A price like this would see you paying stamp duty at 1% - which is a slightly more manageable sum. The most important thing is not to forget about stamp duty altogether when you’re working out your budget for buying a house or flat. If you don’t remember to include it, it can be an unwelcome sting in the tail when you should be celebrating having just bought your first home.

There are other sources of help available too, like Help To Buy – which is a government-backed scheme. If your would-be next home is a new-build on the market for up to £600,000, you could qualify for government assistance buying it. You will need to have saved up a deposit worth 5% of the property’s value and secure a mortgage worth 75%, and the government will then make up the outstanding 20% with an equity loan. This means you should be able to save up the lump sum of cash you need for a deposit a lot faster.

If owning a home is your dream, don’t give up on it. With careful planning for everything you’ll need to pay for and some dedicated budgeting and saving, you’ll get there!