As of October 2024, stamp duty continues to be a key consideration for property buyers in the UK, especially for those using bridging finance. In this article, we will focus on England and Wales, as we provide finance primarily for these regions.
With potential changes to stamp duty thresholds in 2025, anticipated to be addressed in the Autumn Budget on 30 October, borrowers who use bridging loans for quick property purchases may face new financial challenges. This article breaks down how stamp duty applies in England and Wales, its effect on bridging borrowers, and what potential budget changes mean for those looking to buy homes, auction properties, or invest in buy-to-let (BTL).
What is Stamp Duty?
Stamp Duty Land Tax (SDLT) applies to most property transactions in England, while Land Transaction Tax (LTT) applies in Wales. Buyers pay these taxes when purchasing properties or land over a certain value. In England, SDLT is due for property purchases such as:
Freehold property purchases
Leasehold purchases (new or existing)
Purchases through shared ownership
In Wales, LTT applies similarly to property and land transactions above specified thresholds. For bridging borrowers, stamp duty adds an immediate cost, which can impact the affordability and profitability of quick-turnaround purchases.
Current Stamp Duty Rates in England and Wales
As of October 2024, the SDLT rates in England are:
£0–£250,000: 0%
£250,001–£925,000: 5%
£925,001–£1.5 million: 10%
£1.5 million+: 12%
First-time buyers can benefit from a higher threshold of £425,000.
For those buying additional properties valued at over £40,000, such as BTL or second homes, there is an added 3% surcharge on top of these rates. This surcharge affects many bridging borrowers who purchase properties for investment or as part of a portfolio.
In Wales, LTT is applied at these rates:
£0–£225,000: 0%
£225,001–£400,000: 6%
£400,001–£750,000: 7.5%
£750,001–£1.5 million: 10%
£1.5 million+: 12%
For additional properties, higher rates apply:
£0–£180,000: 4%
£180,001–£250,000: 7.5%
£250,001–£400,000: 9%
£400,001–£750,000: 11.5%
£750,001–£1.5 million: 14%
£1.5 million+: 16%
How Stamp Duty Impacts Borrowers
Auction Properties
Bridging loans are popular with auction buyers due to the need for swift transactions, typically completing within 28 days. The £250,000 SDLT threshold in England has enabled some auction properties to be SDLT-free. However, if thresholds revert to their previous levels, borrowers could face higher initial costs, which would have to be factored into the bridging loan.
First-Time Buyers
The higher first-time buyer threshold of £425,000 in England currently reduces upfront costs for those using bridging finance to buy their first home. If thresholds are lowered, first-time buyers may see increased costs, making bridging loans less attractive for entry-level buyers due to the additional SDLT.
Buy-to-Let (BTL) Investments
BTL investors often use bridging finance to secure properties quickly and prepare them for the rental market. However, BTL buyers pay a 3% SDLT surcharge in England and higher LTT rates in Wales, which can add significantly to the upfront costs. If SDLT thresholds decrease, bridging borrowers investing in lower-value properties will face additional stamp duty expenses, impacting short-term financing viability.
Advantages and Disadvantages for Bridging Borrowers
Advantages:
The current £250,000 SDLT threshold in England and £225,000 LTT threshold in Wales allows borrowers to avoid stamp duty for lower-value properties, making bridging loans more affordable.
First-time buyers benefit from higher SDLT exemptions, currently up to £425,000 in England, which reduces their upfront costs and makes bridging finance more feasible.
Disadvantages:
If thresholds revert to £125,000 in England, many lower-value properties will incur SDLT, raising initial costs for borrowers.
Investors using bridging loans for BTL properties must account for a 3% SDLT surcharge in England and higher LTT rates in Wales, which can make these short-term loans more costly.
Key Considerations
Bridging borrowers in England and Wales face potential cost changes if stamp duty thresholds are lowered in 2025. For those relying on bridging finance to buy auction or BTL properties, the increased SDLT or LTT costs could impact profitability and the viability of quick-turnaround purchases. First-time buyers should also consider how reduced SDLT exemptions might affect their total costs.
Conclusion
The current stamp duty rates provide a mixture of benefits and challenges for bridging borrowers. Although existing thresholds ease entry for some borrowers, the anticipated changes in the Autumn Budget may reduce these advantages. Buyers should prepare for potential cost increases and factor SDLT or LTT into their financial planning to ensure that bridging finance remains a viable option for their property investments.