First-time buyers have been warned against being seduced by a new mortgage from Halifax that promises to pay their stamp duty.
The government recently extended the stamp duty holiday on all properties bought for less than £175,000 until the end of 2009, but Halifax is offering to pay this tax for buyers above this level and up to £250,000.
The deal, launched this week through branches and brokers, is aimed at first-time buyers with a deposit of at least 10%. However, mortgage experts warn that it won’t be suitable for everyone.
The product itself is a five-year fixed deal at 7.49% and is available up to 90% of a property’s value.
David Hollingworth, mortgage specialist at London & Country mortgage brokers, says the rate on this deal is “disappointing” for first-time buyers and may not represent good value.
“First-time buyers could probably do better on rate than this deal,” he says.
For example, Royal Bank of Scotland (RBS) currently has a direct-only five-year fixed rate also up to 90% of a property’s value with a more competitive rate of 5.99%.
Even when you take the stamp duty incentive into account, RBS’ mortgage still looks more attractive than Halifax’s, says Hollingworth. Stamp duty is currently charged at 1% on properties between £175,000 and £250,000.
So, someone borrowing £225,000 for a property for £250,000 would face a stamp duty bill of £2,500. This equates to around 1.11% of the total mortgage, according to London & Country – or just 0.22% over the five-year term.
“Halifax should be congratulated for being innovative, but I suspect many first-time buyers will be far from delighted with this product,” says Hollingworth.
A further comparison between the Halifax stamp duty mortgage and RBS’ five-year fix by Moneysupermarket.com reveals that a buyer looking to borrow £200,000 and opting for the former deal would save £2,000 in stamp duty. The same borrower, however, opting for the latter deal, however, would save £15,000 in interest payments over five years.
Louise Cuming, head of mortgages at moneysupermarket.com, says: "Buyers should do their sums - at this rate the money saved on stamp duty may be offset by the money you spend on interest payments at the higher rate.”
She also points out £175,000 is more than many first-time buyers can afford to spend on a property. Figures from the Council of Mortgage Lenders show that the average price of a first-time buyer home is £106,000.
However, Emma Partridge, spokeswoman for Halifax, says: "The RBS deal is only available through branches, not through brokers, so this is not a like-for-like comparison."
Halifax is also offering to help to both first-time buyers and movers, by paying half of their council tax (up to £1,000) for the first year in their new home.
Jaedon Green, head of mortgage development at Halifax, says: "We are committed to helping make moving easier for both homemovers and first-time buyers. Council tax is one the largest monthly outgoings from a household budget and our new offer has been specifically designed to give a helping hand."