The new budget has now been announced, and it has been no surprise to see several announcements that affect those looking to purchase a new home. The top line is that there will be an extension to the current stamp duty holiday extension – helping to save buyers money – as well as a new mortgage guarantee that will help first time buyers step onto the housing ladder. Let’s take a look in a little more detail.
Help for everyone: stamp duty holiday extended
Stamp duty is tax that you pay when you buy a property, calculated as a percentage of the property’s overall value. Typically, you don’t pay stamp duty on the first £125,000 of the property’s price. However, last year the government raised the threshold to £500,000, in what has come to be known as a stamp duty holiday.
This means that for many people who are buying a home worth less than £500,000, there has been no stamp duty to pay at all, while for those buying a more expensive home the amount paid has been reduced substantially. We now know that this will continue until 30 June 2021, giving buyers several more months to take advantage.
At that point, it will be reduced to £250,000. Then, from September 2021, it will return to the usual rate of £125,000. The stamp duty holiday applies to homes bought in England or Northern Ireland specifically.
Help for first time buyers: new mortgage guarantee
Getting a mortgage has been slightly harder for first time buyers over the past year, as many banks chose to drop their 95% mortgage products, effectively meaning that buyers would need a 10% minimum deposit in order to qualify. The mortgage guarantee aims to address this, by offering a guarantee on mortgages that are provided to first time buyers with a 5% deposit.
This will apply on homes valued up to £600,000, and many of the country’s biggest banks have already come on board. We’ve heard that Lloyds, NatWest, Santander, Barclays and HSBC will all be offering 95% mortgages from next month.
The guarantee will compensate banks for any losses in the case of a foreclosure. This makes it a safer proposition for financial institutions that have a low appetite for risk.
It is important that anybody thinking about opting for a 95% mortgage thinks carefully about the long-term affordability. Although saving for a smaller deposit is easier in the short term, it means that you will owe the bank more money and ultimately pay more interest. However, it’s still a very viable option for many, and can help you to start building equity from your own home rather than renting from somebody else.
Speaking about the new guarantee during today’s announcement, the chancellor said it is: “A policy that gives people who can’t afford a big deposit the chance to buy their own home.” It is hoped that this will help many younger people who can’t afford to save for a larger deposit get onto the housing ladder.