It was one of the most hotly-anticipated fiscal events of many a year, with plenty of media leaks beforehand generating even more hype and publicity for the 2021 March Budget.
As expected, property featured front and centre with the Chancellor’s announcement of a Stamp Duty holiday extension and the fleshing out of the previously mooted 95% mortgage guarantee scheme.
The expected and much-talked about increases to Capital Gains Tax (CGT) didn’t come to pass, but a Government ‘tax day’ on March 23 is expected to reveal more about its plans to reform property taxes and recoup some of the huge amounts of money it has spent on battling the coronavirus crisis.
In truth, this year’s Budget – Rishi Sunak’s second since taking on the role of Chancellor – was all about the Stamp Duty Holiday and the mortgage guarantee scheme from a property perspective.
Here, we take a closer look at what was announced.
Stamp duty holiday extended…and then again (for some buyers)
After a hard-fought, passionate and wide-ranging campaign to extend the Stamp Duty Holiday – which brought on board MPs, the public, trade bodies, estate agents, lenders, conveyancers, major newspapers, high-profile property celebrities and others – the Government revealed that it would after all be extending the temporary measure beyond March 31.
This was widely expected as it had been trailed heavily in the week before the Budget, following a high-profile Sunday Times story saying the holiday would be extended until the end of June.
The campaign to extend the holiday really picked up momentum after a
petition started by a member of the public generated more than 150,000 e-signatures. When it hit the magic 100,000 mark, it generated a parliamentary debate, held virtually on February 1, in which there was a remarkable alliance between politicians of all parties to extend the holiday and avoid a damaging cliff-edge scenario.
Sunak and the Government were clearly swayed in the end, with the Chancellor confirming in his speech that the Stamp Duty Holiday will be extended from March 31 to June 30 – ‘and then, to smooth the transition back to normal, the nil rate threshold will be £250,000 until the end of September’.
This means there will be a Stamp Duty Holiday on properties up to £500,000 until the end of June, in exactly the same way as there is now, before a holiday on properties up to £250,000 until the end of September. It hasn’t yet been made clear if these new dates will employ a tapered approach or will simply create fresh cliff-edges.
But it is now clear that the normal Stamp Duty thresholds and levels won’t return until October 1 at the earliest. Outside of the holiday, the nil rate threshold for non-First Time Buyers is £125,000, half of what it will be from July to September.
Many who already have sales agreed will be relieved to see the extension, while those buying a home now – especially if it’s a lower value home – will have a far greater chance of completing at a time when tax savings are on offer.
According to property website Rightmove, an additional 300,000 property transactions in England could reach completion by the end of June, based on previous HMRC transaction data, saving buyers £1.75 billion in total.
The portal says that, based on the current sales that have been agreed in England, 80% would now pay no stamp duty due to the holiday.
In the immediate aftermath of Sunak’s speech, the portal saw overall traffic surge by 16% while use of its mortgage calculator jumped by 25%. It expects that almost half (45%) of all properties will now be exempt from stamp duty between July and September, as a result of the holiday.
Some are concerned about new cliff-edges being created, and a possible dip in the market at both the end of June and the end of September, but many have welcomed the extra security and clarity the extension has provided. It should also provide overworked conveyancers, lenders, agents, surveyors and removals firms with more breathing space to help transactions through the pipeline towards completion.
95% mortgages – what was announced?
As you may remember, and as we wrote about at the time, Prime Minister Boris Johnson announced his intention at the virtual Tory Party conference last October to turn Generation Rent into Generation Buy with a 95% mortgage scheme for First Time Buyers.
Little had been heard about the proposal since, but in the days leading up to the Budget it came back onto the agenda, and Sunak confirmed the plans in his Budget speech – albeit with few concrete details.
However, in a shift from October 2020, the scheme won’t be restricted to First Time Buyers, as it will allow all current purchasers to buy properties up to £600,000 with a 5% deposit.
The scheme is set to launch from April and a number of the UK’s biggest lenders are already on board, including Lloyds, NatWest, Barclays, Santander and HSBC, and will be offering the mortgages from next month. Further lenders such as Virgin Money are expected to follow shortly after.
Low-deposit mortgages, which can often be the best chance for First Time Buyers and those with fewer means at their disposal to get on the property ladder, virtually disappeared during the worst days of the pandemic as lenders understandably became very risk-averse. Higher loan to value (LTV) deposits are, by their very nature, much riskier and have been far fewer in number since the dark days of the global financial crisis (2007-2009), when 95% and 100% mortgages were much more commonplace.
Since then, 95% mortgages have usually come with major caveats, such as requiring a guarantor or some kind of parental input, but a Government-backed scheme takes away some of the risk to the lender and incentivises them to offer such schemes.
The new scheme is based heavily on the Help to Buy: Mortgage Guarantee Scheme launched by the Cameron/Osborne Government in 2013, which was introduced in response to a similar shortage in the availability of high LTV products following the 2008 financial crisis.
In the Treasury’s outline of the mortgage guarantee scheme, published on gov.uk, it says only those with a residential mortgage will be eligible (not those buying second homes or buy-to-lets). It must only be taken out by an individual or individuals rather than an incorporated company, be on a property in the UK with purchase value of £600,000 or less, have a LTV of between 91% and 95%, be a repayment mortgage and not interest-only and meet standard requirements in terms of the assessment of the borrower’s ability to pay the mortgage, for example a loan-to-income and credit score test.
It will be a requirement that any lender participating in the scheme must offer a five-year fixed rate product as part of their range of mortgages offered under the guarantee, for those who want the security of longer-term mortgages with predictable repayments.
Like the Stamp Duty Holiday, the Government says the scheme is intended as a temporary measure and will be open for new mortgage applications from April 2021 to December 2022, ‘in line with the Government’s view that the current scarcity of high loan-to-value lending is primarily a response to the pandemic rather than a symptom of a longer-term structural change in the mortgage market’.
The outline adds that the Government will review the continuing need for the scheme towards the planned end date, and determine whether extending the period of eligibility for new mortgages would continue to deliver benefits for prospective homeowners.
How did the industry react to the Budget?
Richard Donnell, Research Director at Zoopla, said: “Taken together, the Stamp Duty Holiday extension and the 95% mortgage guarantee scheme provide continued support for the housing market as we help the economy respond to the pandemic - they address barriers to movement and access to home ownership but will have limited impact on shifting the longer term fundamentals of the housing market.”
Meanwhile, Matthew Tooth, Chief Commercial Officer at LendInvest, said: “It is welcome news to see the Stamp Duty tax deadline extended in the Chancellor’s Budget today. This extension will not only alleviate a lot of the mounting pressure that is currently on lenders, but also conveyancers, intermediaries and other professionals involved in property transactions.”
He added: “We can expect this decision to have a positive effect on house prices. Last year we saw a six-year high for residential price growth at 7%, partly driven by the first stamp duty holiday implementation by the Chancellor. Whilst previous analyst expectations for 2021 predicted stable growth of between 1%-1.5%, combined with the highly successful vaccination drive in the UK, we can now expect higher growth for the market over the next quarter.”
Kevin Shaw, group managing director of residential sales at Leaders Romans Group, said of the Stamp Duty extension: “In the past year [the holiday] has been a crucial boost for the UK economy, and the ongoing momentum will certainly help to increase public confidence in the post-Covid recovery. At the moment, the property market is set to be stronger than initial forecasts have suggested and we expect Q2 to perform well. The Stamp Duty Holiday extension will certainly help with this.”
Bryan Mansell, co-founder of PropTech supplier Gazeal, had a more cautious response: “Although it’s positive to see the Government listen to the views of agents and conveyancers on the coalface, as well as the property-buying public, more consideration should have been paid to calls for a more specific tapered end to the tax cut. A three-month extension - and additional help until September - will be more effective than an additional six weeks, which was previously rumoured to be in the Chancellor's plans. However, it still creates a cliff-edge so even though more buyers will benefit from Stamp Duty savings than previously thought, there will still be some who miss out.”
With regards to the mortgage guarantee scheme, our own CEO Rob Houghton said: “We saw the proportion of First Time Buyers in the market drop by 12% in the second half of last year, as they benefited less than existing homeowners from the stamp duty holiday – so we’re pleased to see the Government is focusing on making it easier for them to buy a home. High LTV mortgages do come with risks but there is a place for them in today’s market as long as First Time Buyers are educated and informed about what could happen if prices fall.”
He added: “Not everyone has access to the Bank of Mum and Dad, so the launch of a mortgage guarantee scheme will help democratise home ownership and bring it back within reach of those buying without financial support. There are vast numbers of people who could easily afford monthly mortgage repayments but are stuck paying a higher amount in rent each month, meaning they’re unable to save a deposit.”