Homebuyers: Last chance to save £1,750!

If you're planning to buy a home, you can cut up to £1,750 off your costs by acting now.... but hurry up!

If you're thinking about moving to a new home, or you're taking the first step onto the property ladder, I'm sure you've already got a pretty good handle on all the costs involved. So, you'll have thought long and hard about things like mortgage arrangement fees, valuation fees, legal costs and how you'll actually afford your new mortgage repayments. It's all a bit scary, isn't it?

But, on the plus side, you may also know that properties worth up to £175,000 are free from stamp duty right now. It's a chance to save a bit of money off the whole home buying process at last!

If you're not too familiar with it all, stamp duty is a tax levied on buyers when you purchase a property. It's charged as a percentage of the purchase price, and increases dramatically on more valuable homes. Stamp duty can set you back anything between 0 per cent and 4 per cent of the property price, and so it can equate to a hefty tax bill, depending on how expensive your new home is.

Stamp duty holiday

In September last year, the government introduced a stamp duty "holiday" in an attempt to avoid a full scale house price crash, and in particular to support first-time buyers. This is great news for anyone looking to buy a home worth £175,000 or less because the stamp duty holiday means a tax saving of up to £1,750.

But all that is set to change. The holiday is set to end abruptly on 31 December. After that date, stamp duty rates will be increased from 0 per cent to 1 per cent on properties with a purchase price of between £125,000 and £175,000. This means, if you're buying a home within this price range, your stamp duty tax bill will jump from zero to between £1,250 and £1,750, depending on the value of the home you buy.

This is how the rates are set for all properties this year and next year:

Current and 2010 stamp duty rates

The bad news is, if you're going to take advantage of the stamp duty holiday before December 31, you need to act now. Property purchases typically take around three months to complete. This means the home buying process needs to be well under way before the end of this month to give you a realistic chance of side-stepping stamp duty costs.

According to new research from Abbey Mortgages, up to 35,000 home buyers will look to purchase a property valued at £125,000 to £175,000 between 30 September and the end of the year. And Abbey estimates if these sales complete after the deadline, the collective stamp duty tax bill levied on buyers would run to a colossal £53.7 million. Wouldn't you rather that money stayed in your hands, rather than the government's coffers?

Who isn't affected?

If the property you want to buy is worth under £125,000, you won't be affected by the changes. In this case, purchases remain exempt from stamp duty, even after December 31.

Similarly, if the price of the property you want to buy is over £175,000, there's no need for you to hurry. Your stamp duty costs will remain exactly the same.

Stamp duty needs further reform

Here at lovemoney.com, we think stamp duty is in dire need of reform by the Government. Why? Well, if you bought a property with a purchase price of £250,000, your stamp duty costs would set you back £2,500 with a 1 per cent stamp duty charge. However, if the purchase price was just £1 more at £250,001, the tax would jump up to a whopping £7,500 with a 3 per cent charge. That's three times as much, which hardly seems fair given that the difference in purchase prices for the two properties is a mere £1.

So, if the asking price of the property you're interested in is just above a stamp duty band - if it's on the market at £255,000, for example - try your very best to negotiate a purchase price with the seller which falls below the £250,001 threshold.  If you can persuade the seller to agree, the stamp duty rate you'll pay will reduce from 3 per cent to 1 per cent in one fell swoop.

If you manage to convince the seller to reduce to £250,000, the purchase price will just scrape into the 1 per cent stamp duty rate. Your tax bill will then be cut back to £2,500, rather than the £7,650 it would have been if the purchase price had stayed at the original £255,000, and you were forced to pay the duty at a rate of 3 per cent. That's a saving of £5,150 in tax alone.

So, you can see there's great opportunities here for huge savings on stamp duty. Just make sure you don't miss out.

If you're looking for a new mortgage or you're a first-time buyer, speak to a fee-free, whole-of-market broker at lovemoney.com.

More: Buy your first home in eight easy steps | Buy your first home in eight easy steps: Part Two! | The secret to a cheaper mortgage