Big lenders on board with 95% mortgages as stamp duty change prompts mini boom

The Budget this week brought good news for homebuyers. The Government is launching a mortgage-guarantee scheme to allow lenders to accept five per cent deposits and is extending the stamp duty holiday.

The Help to Buy mortgage guarantee scheme, which will run from April 2021 to December 2022 for properties up to £600,000, is a reaction to the withdrawal of high loan-to-value products during the pandemic when lenders became fearful of non-payment and subsequent repossessions. The scheme gives them the option to purchase a Government guarantee that compensates them for a portion of their losses if they have to repossess a property and is aimed at stimulating lenders’ appetites for 95 per cent loans. NatWest, Barclays, Santander and HSBC are among the lenders on board with the scheme.

Along with helping buyers, the move is aimed at existing home owners with low levels of equity in their property who are struggling to move or remortgage.

It is open to all homebuyers, not just first-time buyers, and lenders must offer a five-year fixed rate as an option. Those buying to let and those purchasing second homes are excluded. The 95 per cent mortgages will be subject to the usual affordability and credit assessments.

Andrew Milnes, Property Post mortgage expert and business principal at the Mortgage Advice Bureau in Bingley, says: “I welcome the support offered by the Chancellor for lenders offering 95 per cent mortgages. It is encouraging to already see some of the major players on board and positive signs that others, including Virgin Money, will also be involved. As with all these things the devil is in the detail but any support to address one of the biggest hurdles first-time buyers have faced – a lack of deposit – has to be positive if it is delivered in the right way.”

Within half an hour of this announcement the use of the Rightmove mortgage calculator jumped by 85 per cent and overall traffic to the property portal jumped by 16 per cent, which shows the prospect of Government-backed 95 per cent mortgages could be a boost to the already buoyant property market.

Chancellor Rishi Sunak also announced that the stamp duty holiday on homes valued up to £500,000 has been extended from March 31 to June 30. To ease the way back to the previous £125,000 threshold, between June 30 and September 30, the threshold will be £250,000. Rightmove calculates that 45 per cent of all properties will be exempt from stamp duty from July to September.

The stamp duty announcement sparked a housing market boost within minutes, according to Simon Blyth, of the Simon Blyth estate agency chain. He says: “The calls started on Wednesday afternoon just after the Budget speech and we have been inundated with them and we now have three times as many home valuations booked compared to the same time last year. I don’t think this is just down to the extension of the stamp duty holiday. I think it’s the fact that the Chancellor has not raised taxes, as people feared he might.

“As for the mortgage-guarantee scheme, it is perfect, especially for first-time buyers. All in all, it was a very logical and a very positive Budget.”

Patrick McCutcheon, head of residential at Dacre, Son & Hartley estate agency, agreed that the mortgage guarantee would be a boost for would-be first-time buyers, many of whom have been locked out of the market.

He added: “Buying a home is an incredibly exciting time but beyond that the purchase supports a whole industry of home moving and furnishings-related businesses and tradespeople. We very much welcome this move to provide mortgages to homebuyers who put forward a five per cent deposit.”

As for the stamp duty deadline extension, he said: “The March 31 stamp duty deadline had the potential to deliver a cliff edge to transactions. The conveyancing profession has been working incredibly hard to ensure that home movers can achieve the saving but the extension of the relief now takes some of that pressure off the system and releases the emotional pressure home buyers are currently experiencing within what is already a challenging environment.”

Rightmove’s property expert Tim Bannister also applauded the Budget announcements. “We’ve heard from so many first-time buyers over the past year of their challenges to raise a 15 or 20 per cent deposit, with a number saying they had to put their plans on hold, so the availability of five per cent deposits will really help this all-important market sector. It’s also a helping hand to people who have been struggling to trade up because of the much bigger deposit needed.

“However, right now there are not enough properties coming to market to satisfy the increased buyer demand that this scheme will likely bring, so if more people do choose to trade up this could help open up more choice at the start of the property ladder. The combination of not enough stock and high demand will help underpin prices and we have calculated that over the past five years asking prices of a typical first-time buyer home has increased by £23,000 on average, so those who can now afford to buy a home will be trying to make the move quickly in case prices rise further.”

On the stamp duty saving, Mr Bannister adds: “This three-month extension will come as a huge relief for those people who have been going through the sales process since last year and were always expecting to make use of the stamp duty savings.

“Our recent data shows one in five sales that were agreed in the same month the stamp duty holiday was first announced in July last year still haven’t completed, so this additional time will make a big difference to help those stuck in the logjam complete their purchase in time before the new end of June deadline.

“Buyers who have recently agreed a sale now have a race on their hands to see if they can also make use of the stamp duty savings but many with purchases over £250,000 will find that time is too tight to complete before the end of June and so shouldn’t be factoring this into their purchase. It is worth remembering that the average savings vary massively around England and first-time buyers will still be exempt if they’re buying for £300,000 or less.”

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