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Guide to the Budget
BudgetMar 11 2021

Rishi Sunak tries to support the housing market

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Rishi Sunak tries to support the housing market
Credit: Hannah McKay/EPA-EFE/Shutterstock via Fotware

The government has big plans to turn Generation Rent into Generation Buy.

And on Budget day Chancellor Rishi Sunak laid out plans he believes will make this a reality: announcing the launch of a mortgage guarantee scheme and an extension to stamp duty.

The scheme which will be introduced from 1 April, will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5 per cent on homes with a value of up to £600,000.

Under the scheme all buyers will have the opportunity to fix their initial mortgage rate for at least five years should they wish to. 

The scheme, which will be available for new mortgages up to 31 December 2022, is intended to increase the availability of mortgages on new or existing properties for those with small deposits. 

Several of the country’s largest lenders including Lloyds, NatWest, Santander, Barclays and HSBC will be offering these 95 per cent mortgages from next month, and others, including Virgin Money, will follow shortly after. 

What lenders will be looking to understand is whether they will be able to adjust their affordability stress tests to support a greater number of buyers Lisa Martin, TMA Club

Lisa Martin, development director at TMA Club, says the 95 per cent mortgage market has endured significant challenges during the Covid-19 pandemic, but the Budget promises much-needed support for many borrowers in this area.

First-time buyers

First-time buyers and home-movers form a vital cog in the economy and housing market and government support has been crucial here.

But Martin also argues that the £600,000 threshold as part of the new 95 per cent mortgage guarantee scheme will support many but not all areas of the UK.

She adds: “However, what lenders will be looking to understand once the new scheme starts next month, is whether they will be able to adjust their affordability stress tests to support a greater number of buyers. 

“This is in addition to ensuring that the percentage of their lending is balanced across all loan to value risks.  I hope to see greater clarification on this so that lenders are in as strong a position as possible to serve customer demand for the scheme.”

Nigel Purves, chief executive of Wayhome, says the headline-grabbing 95 per cent mortgage policy is politically astute, but it is a “band-aid on a bullet wound” as it does not tackle the affordability issue.

Mr Purves adds: “The affordability issue for renters goes much deeper than the deposit. Mortgage lenders calculate their lending by multiplying household income – and with the average house price in England coming in at just under £270,000, it means that you’ll need quite a hefty household income to get a 95 per cent mortgage to afford to buy it. 

“If the Government is truly committed to turning Generation Rent into Generation Buy, it must work together with the property industry to raise awareness of innovative ways to help people take their first step onto the homeownership ladder.”

Stamp duty holiday

Under plans to keep the housing market active, the government will also extend the stamp duty holiday in England and Northern Ireland until 30 June 2021. 

From 1 July 2021, the stamp duty threshold before tax is applied will reduce to £250,000 until 30 September 2021 before returning to £125,000 on 1 October 2021. 

Rob Clifford, chief executive of Stonebridge Group, says the stamp duty holiday extension is a welcome and sensible intervention. 

“Clearly, it will help some purchasers continue with their SDLT-free transaction, who might ordinarily have struggled to comply with the 31 March deadline. There is a risk that this might act as the catalyst for a further spike in new purchases cases which now attempt to complete before this new deadline, which the market needs to consider. 

 “Let’s not forget that a short-lived Stamp Duty holiday isn’t the solution.” 

He believes the government “missed a trick” when they could have brought about a permanent resolution – by accepting the compelling economic arguments that suggests it is an outdated tax and its removal would consequently lift transactions and thereby deliver far more taxation upside to the Treasury’s coffers than the stand duty system does.

Kevin Dunn, mortgage specialist at Furnley House, welcomes the extension of the stamp duty holiday until 30 June, and then the doubling of the nil rate band so that stamp duty only applies to houses over £250,000 until the end of September, for those already in the process of buying a new home.

Dunn says: "However, the end has only been postponed, so this window of opportunity must be taken. Many people are of course not moving home, but there are things they can do to potentially benefit from this situation themselves.

"House prices in the UK have risen 14 per cent in the last five years (according to Zoopla) while interest rates on mortgages are at record low levels of around 1.29 per cent in some cases, so this is an ideal time for people to consider remortgaging on to a better rate."

Dave Harris, chief executive at more2life, says while the stamp duty holiday extension is welcome, people should not be complacent as the lenders, conveyancers and government systems are still under a huge amount of pressure.  

It is still likely to take longer than normal to complete due to the volumes that organisations are dealing with and he urges equity release advisers to work closely with lenders over the coming weeks to ensure that they are better able to manage client expectations.

Harris adds: “Flagging crucial details with the lender at the start of the application process and suggesting that clients use one specialist solicitor are a couple of simple steps that advisers can take to help them process purchase applications as efficiently as possible. 

“While not every client will meet the new stamp duty holiday deadline, working in conjunction with later life lenders will ensure that advisers are better able to support clients on their purchase journey – not only over the coming months, but beyond September as well.”

The government will also help Support for Mortgage Interest (SMI) claimants in Great Britain to move home by allowing them to add the legal costs associated with transferring their claim to a new property to the value of their loan from 15 March 2021. 

SMI helps homeowners on certain benefits pay interest on loans or mortgage.

Ima Jackson-Obot is deputy features editor of FTAdviser