The 2021 Spring budget outlined a few changes that would benefit help homebuyers. The chancellor, Rishi Sunak talked about the Government’s goal of turning Generation Rent into Generation Buy.
There had been mutterings about the potential changes and leaks that confirmed what some thought may happen, so let’s have a look in more detail of the realities now the official budget documents have been released.
Stamp Duty Holiday Extended
The temporary stamp duty holiday, introduced in 2020, is being extended in England & Northern Ireland to 30th June. In Wales, the holiday is on the first £250,000 and has the same end date. In Scotland, the threshold is also £250,000 but here it ends on 31st March.
The holiday in England and Northern Ireland means that the first £500,000 of a property will be tax -free, which means a saving of up to £15,000. Beyond that date the threshold will drop to £250,000 until 30th September, after which it will return to its normal rate of £125,000. For first time buyers, their threshold is £300,000, and this will come back into effect after June.
The first cut will have an impact on first time buyers who spend more than £300,000 and for all other homebuyers (including property investors).
For a current homeowner who is looking to move and will pay £450,000 for their new property, if they move in before the end of June, they will save £12,500, but if this is delayed to July then that saving reduces to £2,500.
Buying somewhere now and completing before the June deadline is possible but unlikely because there is such a huge backlog in the system at present, and this was why there were some pushing for this extension. They argued that it was needed to reduce the backlog.
This holiday is obviously going to benefit some people to get on the property ladder or to complete purchases that are still in the system, but its main aim is to support the market rather than provide help to any particular sector of property buyer.
95% Mortgage Guarantee scheme
Pre pandemic saw many 95% mortgage deals available, but Covid-19 put a stop to that. It led to the anonymity of mortgages where only a 5% deposit was needed. According to Moneyfacts, in March 2020 there were 391, 95% deals available compared to only five last month, which were all specialist deals.
The idea of the new scheme, which will open in April and run to the end of 2022, is to encourage lenders to start offering 95% mortgage deals again. This will be done by giving them the chance to buy a guarantee on the part of a mortgage that is between 80% and 95%. As a result, if the borrower gets into financial difficulty and has their property repossessed, the government will cover that portion of the lenders loss.
Some of the UK’s largest lenders including Barclays, HSBC, Lloyds, NatWest, and Santander have already said they will be offering these mortgages, and others like Virgin are expected to follow soon after.
The scheme will be available for any creditworthy household that is struggling to save a deposit bigger than 5% and will be for standard mortgages only. It is not available for buy to lets or second homes and is only for properties that cost £600,000 or less. Any mortgage must be on a repayment basis, and borrowers must meet lenders standard rules on affordability.
Many clients have asked us what we expect interest rates to look like, and the honest answer is that at present we don’t know. However, mortgages that are currently available at 90% attract rates around 3% to 3.5%, so its possible to assume that rates could be around 3.5% to 4%. Moving forward though it is possible we could see rates reducing slightly.
The government have told lenders that as part of the scheme, they must offer customers a five-year fixed rate deal so that they can fix their monthly payments in the short to medium term. When considering who will benefit the most from this scheme, we believe it is likely be those buying in the Midlands and the North. Property prices in London and the South East are at such a high level that to borrow 95% means that potential purchasers could fall foul of the lender’s affordability tests.
As far as house prices are concerned, it is unlikely that they will fall in the short term, so we are expecting a continually strong housing market through 2021. We do however need to consider that there is till a lot of risk out there, with many people still on furlough as well as those who are losing their jobs. This could dampen the market slightly, so we continue to monitor this with caution. For those clients who are secure the changes should be of benefit, but for those who are struggling to keep up with prices, this could only make matters worse. If you are at all unsure about your options, speak to your broker.