In his latest column, Greg Cunnington of Alexander Hall explains how the stamp duty holiday extension and 95% mortgage scheme announced in the recent Budget will help boost your chances of getting onto - or moving up - the property ladder
Already this year has seen a notable improvement in the number of mortgage products available. Not only are lenders accepting a wider range of applicants by broadening their criteria, but more people have been able to get the purchase budget they require and step on to the property ladder thanks the increasing number of 10% deposit mortgage offerings.
So far so good. But, last week it got even better when the chancellor Rishi Sunak confirmed in the Budget a new Mortgage Guarantee scheme, which will see the return of mortgages for borrowers with a 5% deposit. On top of this the government also extended the current stamp duty holiday deadline.
This is potentially great news for many prospective homebuyers.
I am going to explain a bit more about the Mortgage Guarantee Scheme and the Stamp Duty holiday extension to help you understand how you might benefit…
Mortgage Guarantee Scheme
The government has confirmed a new Mortgage Guarantee Scheme will be introduced in April to bring 95% loan-to-value (LTV) lending back to the market.
This is very similar to the Help to Buy scheme which was in place between 2013 and 2016. It’s essentially a government insurance policy which gives protection to lenders who offer 95% LTV mortgages, against the risks associated with possible future house-price declines.
This gives mortgage lenders confidence to lend to buyers with a 5% deposit.
What has been confirmed?
It will take some days and weeks to see mortgage lenders confirm the exact criteria and mortgage rates for these new Mortgage Guarantee Scheme products. However, some important details have already been confirmed. These include:
- A minimum of 5% deposit is required
- Applicants will be eligible as long as the property being purchased is to be their main residence, so home movers as well as first-time buyers can take advantage of the new products
- This is open to any property type eligible to the mortgage lender’s criteria (not restricted to new build such as the existing Help to Buy scheme)
- These mortgages will be available from April (exact date to be confirmed)
- Lloyds, NatWest, Barclays, Santander and HSBC have already committed to launch with the scheme next month, with Virgin Money expected to follow soon after
- There will be a maximum purchase price of £600,000
How does this benefit me?
This is great news for many buyers who have been unable to buy due to a lack of mortgage availability with a 5% deposit, or previously restricted to using the Help to Buy equity loan scheme, which is limited to eligible new build properties only.
The graph below highlights why the government saw a need to help buyers here:
The fact so many of the UK’s largest mortgage lenders have already been confirmed as part of Mortgage Guarantee Scheme is a very positive sign – it means there will be options for clients of all scenarios.
The interest rates will likely be higher than current mortgages available to those with a 10% deposit, and criteria is likely to be a little more restrictive in terms of maximum borrowing and credit score requirements.
As such, it is crucial you look to take advice from a mortgage intermediary on the options available to you. This also means if you have a 10% deposit or higher, you are likely to be better off from a mortgage perspective proceeding on the existing options available to you.
You can see for yourself how much you may be able to borrow using the calculator on our website, or for a more accurate assessment please get in touch to speak to one of our advisers directly.
Stamp Duty Holiday extension
The existing stamp duty holiday was introduced in June last year as a measure to help boost the housing market following its closure in the first lockdown. It meant the stamp duty nil band – the minimum purchase price at which stamp duty is eligible – was increased from £125,000 to £500,000. This offered the potential to save up to £15,000 on the transaction.
The chancellor (pictured, left) has now confirmed the stamp duty holiday will be extended until 30 June. It has also confirmed, after this time, the nil rate band will then be set at £250,000 until 30 September, giving an additional benefit for buyers who complete between 1 July and 30 September.
Why did the government extend the stamp duty holiday?
This extension offers the boost required to keep the property market buoyant as we emerge from lockdown.
Website RightMove estimated an additional 300,000 property transactions in England could benefit from the tax saving from this extension. That is a lot of buyers the government can help.
Although of course this would mean lower tax receipts from the stamp duty, home moving feeds into various other parts of the economy. It leads to buyers purchasing homeware items, the need for removal firms, building and gardening work are instructed – it is a huge part of keeping the economy going.
How can I benefit?
There has been real concern from many buyers, estate agents and solicitors that if the government stuck to the 31 March deadline many buyers would miss this deadline, which would cause chains to collapse and people would miss out on their purchases altogether.
There have been service issues from mortgage lenders (thankfully now in a better place), solicitors have been struggling under the volumes of work and there have been reported delays in local authority searches being returned.
All this combined meant there were real concerns for buyers over completing by the 31 March deadline.
As such, for buyers with purchases agreed this extension will mean real peace of mind.
There is also now a short window of opportunity for new buyers to take advantage of the stamp duty holiday. We have found buying activity has remained high this year despite the impending deadline, so this extension will mean a lot of applicants, currently viewing properties, who want to move fast!
Any buyer keen to take advantage of this extension will need to be able to progress fairly quickly, so they should ensure they have their mortgage agreed in principle by speaking to an intermediary such as ourselves with their documentation prepared.
They should also set up with a solicitor who has confirmed they have a manageable work load, to have the best chance of success to meet the new deadline.
Some buyers will still miss this new deadline, so our advice would be to set yourself up to move as quickly as possible.
Beating the crowd
Website RightMove recorded nine million website hits on Wednesday – the day the deadline extension was announced – setting a record and breaking the previous week’s by 0.5 million,
Meanwhile, estate agents reported applicant enquiries climbing 82% compared to the same week last year. This means you should expect the property market to be very busy, and very competitive as other buyers take advantage too.
At Alexander Hall we have escalated service access to the major lenders, so ensure you are speaking to an intermediary such as ourselves.
Mortgage Products
Interestingly, the conversation around buyers’ purchasing power has focused primarily on the stamp duty holiday deadline in recent months.
Buyers also need to factor in that mortgage product availability has improved significantly, meaning there are now more options to pick from to suit varying circumstances.
This is great news for buyers with small deposits or those who need to maximise their incomes. In fact, there has been a 42% increase in the number of mortgage products available in the last four months.
Speaking to an intermediary such as Alexander Hall will help you to identify and navigate these options and most probably be pleasantly surprised at the outcome.
You can check out the best deals available right now via our website.
Please get in touch with us if you need any further advice. You can email us at AskAlexanderHall@alexanderhall.co.uk or use the contact us page on our website.
Greg Cunnington is director of lender relationships and new Homes at Alexander Hall
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT
