A tapered extension to the stamp duty holiday and a government-backed mortgage guarantee scheme are among the measures aimed at helping home buyers and sellers announced by Chancellor Rishi Sunak in the Spring 2021 Budget. The Chancellor recognises the importance of the housing market to the wider economy and is doing all he can to support it.
What is the temporary stamp duty holiday?
The temporary stamp duty holiday extension means if you are buying a home up to the value of £500,000 you will not pay any stamp duty if the purchase is completed by 30 June 2021. Then, to smooth the transition back to normal, the nil rate threshold will be set at £250,000 until the end of September, before returning to the usual threshold of £125,000 on 1st October 2021. This could result in savings up to £15,000 which is great news for the property market and wider economy. However, for those north of the border, it is worth noting that there hasn’t been any further update from Scotland on any extension to the Land & Buildings Transaction Tax (LBTT) holiday, which is currently due to end on 31st March 2021.
The news will be welcomed by thousands of home buyers and sellers who have been desperately trying to get their sale completed in time to meet the previous deadline of 31st March. Extending the stamp duty holiday until the end of June, then phasing it out until September should help avoid a sudden downturn in prices caused by the cliff edge that many feared we would have with a sudden cut-off point.
Our advice is for buyers and sellers to act sooner rather than later. Three months may seem like plenty of time, but with an estimated 628,000 sales in total still currently in the legal process across Great Britain, coupled with the challenges of conveyancers, solicitors and councils working from home, there could be an increase in the risk of transactions not being completed in time.
Overall, we see this as positive news for the market although its necessity is debateable. Most buyers are motivated by far more than just a tax break, and high cancellation rates if the stamp duty holiday ended in March were highly unlikely. COVID-19 has forced homeowners to re-evaluate their priorities in terms of space, location and accessibility, and these factors will continue to buoy the market long after the scheme comes to an end.
What is the mortgage guarantee scheme?
The Spring Budget has also introduced a 95 per cent loan to value (LTV) mortgage guarantee scheme to help buyers with small deposits get on the property ladder. Under the new scheme, which will launch in April, first-time buyers and existing homeowners will be able to purchase homes worth up to £600,000 with a deposit of just 5%.
The Treasury has said it will guarantee parts of the loans on properties worth up to £600,000 in order to encourage lenders to reintroduce low-deposit mortgages which had largely been withdrawn by lenders during the coronavirus pandemic, which meant many buyers have faced raising deposits of 15-20% in order to secure a loan. Many of the big lenders, including Santander, Lloyds, Barclays and HSBC are backing the scheme and will be offering “government guaranteed” mortgages from next month.
The scheme has the potential to be a real game changer by enabling first-time buyers to get on the property ladder and also giving a helping hand to people who have been struggling to trade up because of the much bigger deposit needed. At the moment, there are not enough properties coming to market to satisfy the increased buyer demand that this scheme will likely bring, so if more people do choose to trade up this could help open up more choice at the start of the property ladder. Our expectation is that this will boost transactions and house prices, and will indeed help turn Generation Rent into Generation Buy, which is good news for the housing market and the economy.
Written by Nigel Parmenter, Partner in the Berwick office. For more information on how the Spring Budget affects you within the residential property market please contact one of our Estate Agents:
Berwick: 01289 304432
Galashiels: 01896 751300
Keswick: 017687 72988