Budget 2021 highlights for home buyers

On Wednesday, 3 March 2021, Rishi Sunak delivered his second Budget as chancellor.

He noted the economy has been damaged, with GDP shrinking by 10% in 2020, and that the road to recovery would be a long one. However, he added: “We will continue doing whatever it takes to support the British people and businesses through this moment of crisis.”

The chancellor announced two key measures for the property sector.

First, the Stamp Duty holiday will be extended by six months. Until the end of June, homebuyers purchasing a property worth up to £500,000 will not have to pay Stamp Duty. The threshold will then fall to £250,000 until the end of September. From October, the threshold will be £125,000.

Second, the government will provide mortgage guarantees to lenders offering 95% mortgages. The move aims to support first-time buyers with small deposits. These mortgage products will be available from April.

But the Chancellor’s had some bad news in the budget for estate agency owners and those operating millions of other UK businesses. Corporation tax is to rise from 18% to a whopping 25% from 2023 onwards, although smaller businesses with profits of less than £50,000 a year will see no rise. Between £50,000 and £250,000 the rate will be tapered up from 19% to 25%

Budget 2021 home owners

 

Here are some comments from the industry experts:

Neil Weston, Principal of Scout Financial Services, in response to the Chancellor’s Budget announcement that the Government will support lenders in offering high loan-to-value mortgages:

“We are thrilled to see Government support for first-time buyers included in the Chancellor’s Budget today. We have been calling for greater support for mortgage lenders in this space for a while now and action on this was promised by the PM back in October, so it’s great to finally see a plan in place.

“Whilst the availability of mortgages for 90% of the purchase price has improved recently, the market has remained restricted by tight lending criteria and the lack of high loan-to-value mortgages. More support for lenders to lend a higher percentage of the purchase price will no doubt be welcomed across the industry and by first-time buyers. However, many first time buyers may find themselves in a tricky position where they will now have enough money saved for a deposit, but they are unable to secure a mortgage as a result of being furloughed. Recent Treasury figures indicate a total of 4.7 million Brits remain furloughed, many of whom are would-be first-time buyers in sectors such as retail, travel and hospitality.

“Furloughed workers looking to buy a home face far fewer mortgage options, with many lenders refusing to consider furloughed income at all. This announcement from the Chancellor today does little to alleviate that; if anything, the extension of the furlough scheme will only exacerbate the problem. If you’re furloughed and unsure about mortgage availability, it might be worth speaking with a whole-of-market mortgage broker, who will be able to explain your options.”

 

Andy Foote, director at SevenCapital:

Andy Foote“This is a positive budget for the property market announced today. The extension of the stamp duty holiday as it is until June, and the lesser anticipated extension of a holiday on properties up to the value of £250,000 will go a long way in avoiding a collapse in transactions – as previously feared.

“Given the average UK house price sits at around £252,000 overall, and with properties in the Midlands and North of England, Wales, Scotland and Northern Ireland individually sitting at a lower average, this effectively means the average buyer can continue with new purchases through to September.

“Will this mean simply delaying a stall in market activity? We will see, however in the short term, considering the significantly higher level of transactions the industry is currently fighting to complete, this is good news. It is likely we may see a further boost to transactions over the next six months.

“Landlords and owners of second homes will also be breathing a sigh of relief at the news that capital gains tax will not be increased, contrary to rumours flying around prior to the Budget being revealed.

“This group of people have already weathered multiple tax-storms over recent years and in a period that has proven tough for many, a hike to taxes would have potentially pushed them over the edge and forced a further exodus from the market, which would in turn have a knock-on effect on the rental market. Thankfully for now, this will be avoided.”

 

Commenting on the Budget’s incentives for all homebuyers, Vivek Madlani, CEO of first time home buyer investment app Multiply said:

“This is a positive budget for all homebuyers, especially those buying their first home.

The mortgage guarantee scheme will be a welcome boost for many – there will be more mortgage options available to buyers with low deposits because lenders are more protected. This will mean some people will be able to buy sooner, but we’ll need to watch the rates on offer to see how they compare with 90% loans. Remember that deposits are only half of the equation. The other factor is borrowing capacity; where people can typically only borrow up to 4.5 times their annual income. 5% mortgages may do little to help solo buyers or those on average earnings or below.”

When combined with the stamp duty extension, it shows that the government is serious about supporting the housing market, and first-time buyers in particular.

What are the stats?

  • The £600k cap covers 99.2% of Multiply homebuyer’s target property prices, with an average of £230,923
  • The average deposit target is 9.70% across all of our homebuyers, who are on average 27 months away from achieving their home buying savings goal.
  • On average they have saved up a 2.21% deposit already. With a 5% deposit target, 18% of our savers have already saved enough.

Robert Nichols, CEO of Portico on Stamp Duty Holiday Extension

“The extension of the stamp duty holiday is welcome news, especially for the hopeful homebuyers who have been racing to complete this month. This news will make theirs and other new market entrants’ first purchases much more financially attractive, with big savings to be had. It may also incentivise older homeowners to downsize, which could free up some of the capital’s existing housing stock, as according to sources, nearly nine million bedrooms in the homes of older people are lying empty. 

The success of stamp duty holiday thus far does magnify just how much the current form of property taxation inhibits buyers. Suspending this taxation is giving the sector some much-needed momentum and makes entering the market a far more realistic dream for many hopeful homeowners.

The important thing for buyers and sellers to do now is act fast. Three months may seem like a substantial amount of time, but with increased mortgage applications dragging through the system, loan delays could still increase the risk of transactions not completing in time.”

 

Steve Jackson, Financial Services Manager of Portico Finance on the New Mortgage Guarantee Scheme

“Here at Portico, we believe that the government-backed mortgage guarantee scheme is not only a pivotal move in making homeownership a much more realistic goal for hopeful buyers, but it also allows for a wider range of lending products to be considered. Buyers will once again be in a position to choose more freely which mortgage is right for them, which can only further incentivise more people to get on the property ladder.

Covid brought about such uncertainty that saw many lenders withdrawing their 95% mortgage offers and instead of demanding 10-15% deposits and hiking up interest rates, too. 

These rates are finally starting to return to normal levels, and now that the guarantee scheme has been announced, more first-time buyers should begin to feel confident to enter the market.

That being said, it is helpful for buyers to have slightly more than the needed deposit in their pockets, along with a mortgage pre-approval, before rushing to find a house and not have any stamp duty to pay. The advice from a qualified mortgage advisor will also make the entire process much more manageable and straightforward.”