Published: 03/03/2021
The headlines for the property market in the Spring Budget are the introduction of a new guarantee scheme for 95% mortgages, and the extension of the Stamp Duty reduction and the Help to Buy Equity Loan scheme. To the relief of many landlords there will be no increase in Capital Gains Tax.95% Mortgages Rebooted
Under a new mortgage guarantee scheme the government will provide a guarantee to UK lenders offering new 95% mortgages for all types of buyer on all residential properties up to £600,000. According to the chancellor, Lloyds, Santander, Barclays and HSBC will be offering these government-backed mortgages from April, with the scheme scheduled to run to December 2022.
Buyers using the scheme will have the option to fix their initial mortgage rate for at least five years. As the economy deteriorated during the pandemic, lenders stopped offering 95% mortgages due to possibility of default and negative equity represented by these high-risk products.
Lenders’ affordability criteria remain the main obstacle for many buyers in areas with high property prices, so it will be interesting to see whether these are relaxed. With the average London first time buyer spending £489,098, buyers with a 5% deposit need a combined income of £103,254 to secure a mortgage of £464,643 at the generally applied maximum multiple of 4.5x. A couple both earning the average London salary of £39,476 have combined income of £78,952.
Stamp Duty Relief Tapered Off
Last July the Stamp Duty threshold was raised from £125,000 to £500,000 for property sales in the UK and Northern Ireland, and instead of ending on 31st March this will remain in place until 30th June, when it will be reduced to £250,000 before returning to £125,000 from 1st October.
This is a welcome move for the property sector, as the measure boosted the number of sales in 2020 to the highest level since 2006, and there were fears of a looming cliff edge when residential transactions fell by 25% between December and January (a 13% decline when seasonally adjusted). Some experts had predicted that up to a third of sales could fall through as buyers who failed to complete by the original 31st March deadline.
Help to Buy Extended
The Help to Buy: Equity Loan scheme has been extended for a third time until 31st May. Under the scheme buyers in London can purchase a new build home for up to £600,000 with a 5% deposit and a government loan of up to 40% which is interest free for 5 years. From April this year the scheme will be open to first time buyers only and capped at 1.5 times the average first time buyer property price per region.