It was all about the Budget 2021 this week and what goodies or baddies the Chancellor was going to bestow on us this time.
The usual leaks started to appear in the press a week or so ago and these included, amongst other things, an extension of the Stamp Duty Holiday, the re-introduction of Help to Buy 1 and guarantees for lenders around 95% LTV mortgages, potential changes to CGT moving in line with income tax for certain items such as maybe second properties and increases to Corporation Tax.
So, what did we get?
In terms of Stamp Duty, we got basically what was expected, an extension until the end of June, but also an attempt at tapering.
The government will extend the temporary increase in the residential SDLT Nil Rate Band to £500,000 in England and Northern Ireland until 30 June 2021. From 1 July 2021, the Nil Rate Band will reduce to £250,000 until 30 September 2021 before returning to £125,000 on 1 October 2021.
The taper is better than nothing, but the Chancellor could have made it a little more scientific and it does not mean that there will not still be a rush at each deadline, putting more pressure on the system.
It’s important not to get suddenly relaxed about the deadline as any extension could see others try to rush things through meaning already stretched lenders and conveyancers get even more badly affected and before you know it time is running out once more.
95% LTV Mortgages
What we do know is that this will work very similarly to the old Help to Buy Mortgage Guarantee Scheme introduced in 2013, which ended by 2017.
The Government will guarantee part of the loan between 80% and 95%, which the lender pays a fee for, thus giving the lender confidence to lend up to 95% Loan-to-Value. Therefore, lenders know that they will have cover on the riskier part of the lending if they did need to repossess the property and sell it quickly.
It is important to recognise that this guarantee is only for the lender and does not protect the borrower in any way.
As ever the devil is in the detail, but we understand that this will be available to all buyers on all properties up to £600,000, rather than just first-time buyers on New Build properties under the current Help to Buy Equity loan scheme. All mortgages will need to be repayment, not interest-only, and all lenders will also be required to offer a five-year fixed rate product.
It must be a residential mortgage, not a second home, and not a buy-to-let.
Name-checked were HSBC, Santander, Lloyds, NatWest, and Barclays that will offer these 95% mortgages from next month, with more including Virgin Money after that, Chancellor Sunak said.
In all other aspects, it works as any other mortgage does and the borrower will have to meet the standard affordability rules to justify the level of borrowing required. It may well be that there are slightly stricter rules around maximum income multiples on these loans, for example, a maximum of 4.5 times income but this remains to be seen.
As of yet, we do not know what rates will look like under the scheme, but with current 90% LTV rates around 3.25% – 3.5% you would assume they would be slightly higher, and probably starting with a 4 rather than a 3.
People forget that the Government Guarantee for lenders comes at a price, probably costing them around 0.9%, which has to be reflected in the price to the consumer.
There has been some press suggesting that rates will be much cheaper and affordability rules laxer, but this remains to be seen and seems doubtful at this stage.
Watch this space.
Why is the Government doing this in Budget 2021?
The Government is introducing it to give lenders more confidence to offer more products at higher Loan-to-values, especially as they have made the concept of homeownership for all one of their central tenets.
Based on what happened last time it does look like a scheme of this type will work to provide more choice for borrowers, as things stand currently you can count the number of 95% LTV products available on one hand.
This could well make a significant difference to many struggling to save a larger deposit and will be especially good news for many first-time buyers who were not able to take advantage of the stamp duty holiday due to the lack of these types of products.
It will act to help support the property market at a difficult time, although critics will again point to yet another demand-sided prop for the housing market that will potentially keep house prices from falling.
Although it may be further evidence that it is hard to wean an industry off the drugs supporting it, there will undoubtedly be many potential buyers desperate to move, who are happy for the opportunities it will bring.
Generation Rent will indeed now have more chances to become Generation Buy.
To speak to one of our friendly advisers about Stamp Duty or 95% LTV Mortgages, or any other mortgage-related questions please contact us here or call 020 7220 5110.