Who Qualifies as a First Time Buyer?

first time buyers moving house

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

There are 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 the first-time buyer status and what it means if you are buying your first home.

What is a First Time Buyer?

A first-time buyer is exactly as it sounds, someone who is buying their first property. However, there are a few misconceptions about what constitutes a first-time buyer.

Once you’ve owned a property anywhere in the world, you won’t qualify as a first-time buyer in the UK, even if you’ve moved here and want to buy a property. There’s no time limit on being a first-time buyer but if you’ve ever owned a property, you can’t be a first time buyer again.

If you sell your property and start renting for a number of years, this doesn’t make you a first-time buyer either.

First-time buyers receive a generous tax discount and a higher tax-free threshold when purchasing a property, which is called stamp duty.

How is Stamp Duty Calculated?

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

You should always ensure you use a stamp duty calculator to factor in this tax as the price you pay can be significant, even if you are a first-time buyer.

No one is exempt from stamp duty but there is a base threshold below which stamp duty is not charged. This is commonly referred to as a nil rate.

Stamp duty rates are frequently changed and sometimes the government changes stamp duty bands multiple times a year. The main reason for stamp duty changes is to reflect the current property market and to encourage or discourage certain types of buyers.

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

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Other First Time Buyer Perks

Alongside stamp duty perks, first time buyers tend to be the target of government and local authority housing schemes. For example, the First Homes Scheme that is currently running.

House developers also create special packages for first time buyers to entice them to buy new build properties. This means the developer can flip the house quickly as a first-time buyer will not be tied up in a property chain and can purchase the property sooner.

Do Both Buyers Have to Be First Time Buyers?

In the case of stamp duty, all mortgage applicants will need to be first-time buyers to qualify for the stamp duty benefits. If you’re a first-time buyer and buy a property with someone who has owned one before, you’ll lose your first-time buyer status, and it may impact your financial situation.

Of course, we do not live in a perfect world and sometimes it is worth forfeiting your first-time buyer status to get onto the property ladder and progress in your life.

Other First Time Buyer Perks

In other areas, you may find different rules. For example, government schemes tend to only apply if everyone is a first-time buyer. However, with the First Homes Scheme, local authorities can add different rules depending on the local housing needs.

Private companies tend to be a bit more lenient with first-time buyer status. Their main concern is you complete the exchange of contracts in the fastest time so they can focus on building new homes and not selling the houses they have built. They may well allow you to purchase with a discount or perk if you are a first-time buyer purchasing with someone else who has owned a property in the past.

This becomes less likely if you do not commit to completing on the house sale within a strict timeframe. But all housing developers have different rules and incentives, so it is definitely worth finding out.

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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. It might however be the amount you owe is nothing (nil rate) as you qualify as a first-time buyer. This entirely depends on the purchase price.

Do not be mistaken in thinking you can ignore HMRC because you are a first-time buyer, and an online calculator has told you no stamp duty is owed. You will still need to file a tax statement for your property. Normally, your conveyancer will take care of this for you.

The HMRC rule around joint purchases is very clear, if you are buying a property jointly and both people are first time buyers you will qualify.

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

Speak to a Specialist

Mortgage lenders will ask if you are a first-time buyer. Although lenders do not offer specific products to first-time buyers, there are products designed to help people with affordability.

Most first-time buyers find it difficult to save enough money for a deposit or pass the affordability calculations that lenders have. Lenders realise this and have become more flexible in their approach to lending.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers can compare the mortgage market to find the best deals for first-time buyers and offer fee-free advice.

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

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.