Chancellor Rishi Sunak, put in a very vote friendly Budget 2021 this week. Extending many Government grants, support and lifelines, while being a very property focused.

His balanced tone and measured responses, are very refreshing in the face of a generally chaotic political scene in recent years. As ever, we look specifically at what will impact the property and mortgage market, so won’t focus on more broader themes, but just the specific topics that we will have to wrestle with in coming months and years.

Which fall into the 3 main points below:

Stamp Duty Extension

  • As widely expected in Budget 2021 the stamp duty holiday for the nil rate band on purchases up to £500k has been extended to 30th June. However, what was a bit of a surprise was an additional nil rate band to purchases up to £250k until 30th September, which means for the majority of this year people will either have a large discount on their Stamp Duty charge, or pay nothing at all. From the 1st October, the usual bands will apply again.
  • We will wait for further clarification but it looks like the old nil rate for First Time Buyers to £300k has been scrapped and everyone will pay the usual rates from the 1st October. Which means stamp duty will kick in at £125k.
    • Unless they are changed (which wasn’t mentioned) the stamp duty bands will be:
      • nil to £125k
      • from £125k to £250k = 2%
      • from £250k to £925k = 5%
      • from £925k to £1.5m = 10%
      • from £1.5m + = 12%
        • This is tiered just as income tax is, so you pay 2% for the first £125k to £250k, 5% between £250k to 925k and so on.
  • Just for clarity, your house sale will need to have completed by 30th June to get the full discount, or by 30th September for the smaller discount. After that point, the full rates apply again.

95% Mortgage Guarantee Scheme

  • This is actually the most interesting thing from our perspective in Budget 2021. Most lenders have pulled out of offering mortgages to many people who have a 5% or even 10% deposit, and the lenders that have remained in this space are charging at quite a premium (the best mortgage rates can be between 3.5-5% which is large margin if you compare that the UK Base rate is at 0.1%).
  • For first time buyers in the South East of England where the average house price is circa £500k that is a lot of money to come up with, and is exceptionally hard if you do not have family help.
  • What the Government is proposing to do is offer lenders a guarantee on any losses they suffer for new mortgages issued to people buying with a 5% deposit. This is very clever as it doesn’t really cost any money, but allows lenders to have confidence to go back into this market. This is actually a relaunch of a scheme called ‘Help To Buy 2’ (which has nothing to do with Help To Buy, so the name was very clumsy) which started in 2013. Our Managing Director Richard Campo was actually on the BBC talking about this back then, so you can see the link here on how it works if you are interested.
  • As with most of these schemes the Government are likely to cap lending at 4.5 x your income (both single or joint applications), but as we saw before, some lenders may choose to use their own money to be a bit more generous. That probably won’t happen initially, but we suspect that will creep in over time as confidence returns to this section of the market.
  • The objective is to bring in more lenders to this area of the market, which will in turn drive down the cost of mortgages. All the large lenders have already agreed to take part and expect to launch these products in April. Watch this space for how that plays out, but the synergy benefit should also be that it will push down pricing if you have a 10-15% deposit also. Feel free to sign up to our weekly newsletter here as we touch on that topic each week.

 Interest Rates

  • While not explicitly stated in Budget 2021, it was alluded to that interest rates will stay low for a long time to come. It is a logical outcome as the Government has taken on a staggering level of debt and seems keen to continue to do so for more large scale infrastructure projects to help stimulate parts of the economy/UK.
  • That will make that debt servicing considerably easier over the coming years. The hope is that if we keep interest rates low, and possibly play in currency markets, we can deflate our debt in real terms. If not, the average tax payer (you and me!) will be paying a very heavy burden to clear this.
  • Currently, larger, profitable businesses will be taxed more from 2023 onwards to recoup some of this, so it won’t be until then we’ll really know how much the average Joe will have their pay cheque clipped by.

House price bubble?

As touched on above and also with the removal of the First Time Buyer stamp duty break, it is clear that tax is going to be the big topic in coming years and how much “we” should pay. In the immediate future this will fuel a debate about a house price bubble, in fact that was Sir Kier Starmer’s point in his response to the budget. That is an over simplified view which we don’t think will be bear out to be true. Specifically in London and the South East house prices had been flat or gone down from 2016 – 2019, only seeing a fairly modest rise of circa 3.5% in 2020, so house price are now only back to where they were in 2016. Lets say prices go up 5% or more this year – does 5% growth in 5 years seem like a ‘boom’? Not at all. So whatever the numbers are in 2021, that should be take in context to the years prior.

More importantly, the mortgage guarantee scheme will help people buy who currently can’t, and that can only be a good thing. As it is often cheaper to buy than rent in London, that will give people more secure homes and reduces their costs. In a consumer economy that is a win/win. Undoubtedly what was announced will continue to push house prices up and with discounts off stamp duty for much of 2021, the message is clear – buy now or it will cost you more down the line.

If you would like to talk to us about Budget 2021, or more specifically how we can assist you in your own mortgage goals, please do get in contact with one of the team as we would love to help.

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