Who Qualifies as a First Time Buyer?

If you are looking to buy a property in the UK, you may have heard the term first-time buyer. Primarily, first-time buyers receive a tax reduction when purchasing their first property. However, the rules around this status are a little more complex than you might think.

There are also various other benefits that first-time buyers receive compared to those buying a second property or people who have owned property before. In this article, we look into first-time buyer status and what it means if you are buying your first home.

We produced a helpful video all about first-time buyers:

What is a First-Time Buyer?

A first-time buyer is exactly as it sounds – someone purchasing their first property. However, there are a few common misconceptions about what qualifies someone as a first-time buyer.

Once you have owned a property anywhere in the world, you will no longer qualify as a first-time buyer in the UK. Even if you have moved to the UK and are buying property here for the first time, previous ownership overseas still disqualifies you.

There is no time limit attached to first-time buyer status. If you have ever owned a property, you cannot become a first-time buyer again.

If you sell your property and rent for several years, this does not reinstate your first-time buyer status.

First-time buyers benefit from a generous tax discount and a higher tax-free threshold when purchasing a property. This tax is known as stamp duty.

How is Stamp Duty Calculated?

Stamp duty is a tax calculated on the total purchase price of a property.

You should always ensure you use a stamp duty calculator to factor in this cost, as the amount payable can be significant, even for first-time buyers.

No one is completely exempt from stamp duty, but there is a base threshold below which no tax is charged. This is commonly referred to as the nil-rate band.

Stamp duty rates change frequently, and the government sometimes adjusts the tax bands multiple times a year. These changes are usually made to reflect current market conditions and to encourage or discourage certain types of buyers.

For example, people purchasing second homes are now heavily penalised under current stamp duty rules in an effort to tackle the UK housing shortage.

Other First-Time Buyer Perks

Alongside stamp duty benefits, first-time buyers are often the target of government and local authority housing schemes. For example, there is the First Homes Scheme, which is currently available to eligible buyers.

House developers also create special incentive packages for first-time buyers to encourage them to purchase new-build properties. This benefits developers as first-time buyers are not part of a property chain, allowing for a quicker and smoother sale process.

Do Both Buyers Have to Be First-Time Buyers?

In the case of stamp duty, all mortgage applicants must be first-time buyers to qualify for the available tax benefits. If you are a first-time buyer but purchase a property with someone who has owned a home before, you will lose your first-time buyer status, which could affect your finances.

Of course, life is not always straightforward, and sometimes it is worth forfeiting your first-time buyer status in order to get onto the property ladder and move forward with your plans.

Other First-Time Buyer Perks

In other areas, you may find different rules apply. For example, many government schemes only allow participation if all applicants are first-time buyers. However, with the First Homes Scheme, local authorities can introduce their own criteria depending on local housing needs.

Private companies tend to be more flexible when it comes to first-time buyer status. Their main priority is a quick exchange of contracts so they can focus on building new homes rather than selling existing ones. As a result, they may still offer discounts or incentives if you are a first-time buyer purchasing with someone who has previously owned a property.

That said, these perks are less likely if you cannot commit to completing the purchase within a strict timeframe. Each developer has different rules and incentives, so it is always worth checking what is available.

Do You Pay Stamp Duty if One Person Is a First-Time Buyer?

As mentioned, you will always be liable for stamp duty, even if you are a first-time buyer. However, the amount you owe may be £0 (nil rate) if you qualify for first-time buyer relief. This depends entirely on the purchase price of the property.

Do not assume you can ignore HMRC just because you are a first-time buyer and an online calculator shows no stamp duty is owed. You will still need to submit a tax return for the property purchase. Normally, your conveyancer will handle this on your behalf.

HMRC rules around joint purchases are very clear. If you are buying a property jointly and both buyers are first-time buyers, you will qualify for the available stamp duty relief.

If only one person is a first-time buyer, you will not qualify. Unfortunately, if a first-time buyer purchases with someone who has previously owned a property, they will lose their first-time buyer status.

Speak to a Specialist

Mortgage lenders will ask whether you are a first-time buyer. While lenders do not offer specific mortgage products exclusively for first-time buyers, there are products designed to help those with affordability challenges.

Most first-time buyers find it difficult to save enough for a deposit or pass lenders’ affordability checks. Lenders recognise this and have become more flexible in their lending criteria.

Boon Brokers is a whole-of-market mortgage, insurance, and equity release brokerage. Boon Brokers compares the entire mortgage market to find the best deals for first-time buyers and provides fee-free advice.

Contact Boon Brokers to discuss your first-time buyer mortgage today.