The Budget has brought good news for homebuyers. The government is launching a mortgage guarantee scheme to allow lenders to accept 5% deposits. NatWest, Barclays and HSBC are among the large lenders on board. It will launch on April 2021 for properties under £600,000 and lenders must offer a five-year fixed rate as an option. It is open to all homebuyers, not just first-time buyers, however those buying to let and those purchasing second homes are excluded. The scheme will end in December 2022.
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 established £125,000 threshold, between June 30 and September 30, the threshold will be £250,000.
Andrew Milnes, business principal at the Mortgage Advice Bureau in Bingley, says: "Whilst the detail is thin at the moment I welcome the support offered by the Chancellor for lenders offering 95% mortgages. It is encouraging to already see some of the major players on board already and positive signs that others, including Virgin Money etc., 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 i.e. 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 that the prospect of government-backed 95 per cent mortgages could be a boost to the already buoyant property market.
Rightmove’s property expert Tim Bannister said: “We’ve heard from so many first-time buyers over the past year of their challenges to raise a 15% or 20% deposit, with a number saying they had to put their plans on hold, so the availability of 5% deposits will really help this all-important market sector. It could help some buyers bring their plans forward, especially if they managed to save more than they were expecting to while in the various lockdowns. It’s also a helping hand to people who have been struggling to trade up because of the much bigger deposit needed. 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’ve 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’s 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. There are also many other reasons people are choosing to move, evidenced by the strong buyer demand Rightmove has already seen in the first two months of the year.”