Chancellor Rishi Sunak’s Budget 2021 seems too good to be true for homebuyers, so here’s a look at what 95 per cent mortgages and an even longer Stamp Duty holiday means to both landlords and residential homebuyers.

With some delight, the Chancellor echoed the sentiments of Prime Minister Boris Johnson when he explained the Government’s goal of turning generation rent into generation buy.

What he said did not really come as a surprise as both measures were extensively leaked to the media some days earlier. However, papers published alongside the Budget 2021 speech added more information about what his plans mean for homebuyers.

Stamp Duty holiday extended

The Land Duty Stamp Tax – better known as Stamp Duty – holiday has been extended for house buyers in England from 31 March 2021 to June 2021.

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Extending the Stamp Duty holiday will help many landlords who would not have met the original deadline and I predict this will stimulate further sales” said Daniel Lee, Principal at Hamilton Fraser Total Landlord Mortgages.

Landlords should act sooner rather than later if they want the best Stamp Duty deal as the Chancellor plans to raise the bar again at the end of June before taking the rate back to pre-holiday levels in October.

The Stamp Duty holiday rates below apply to homebuyers in England and Northern Ireland. Scotland and Wales set their own taxes with different rates and thresholds from those in England.

The additional home rates for landlords and second homeowners remain unaffected by the Stamp Duty holiday.

These are the key dates and figures you need to keep in mind:

Stamp Duty rates until 30 June 2021 – If you buy a home valued at no more than £500,000, there’s no Stamp Duty to pay

Property valueSDLT rate
Up to £500,000Zero
The next £425,000 (the portion from £500,001 to £925,000)5%
The next £575,000 (the portion from £925,001 to £1.5 million)10%
The remaining amount (the portion above £1.5 million)12%

                    Source: HM Revenue & Customs

Example

In March 2021 you buy a house for £625,000. Stamp Duty is calculated as:

  • Zero per cent on the first £500,000 =                      £0
  • Five per cent on the remaining £125,000 =           £6,250
  • Total stamp duty =                                                       £6,250

Stamp Duty rates from 1 July to 30 September 2021 – The zero rate threshold drops to £250,000.

First-time buyers pick up an extra discount from 1 July 2021 which keeps their zero rate threshold at £500,000 if they are genuine first time buyers and the property is valued at £500,000 or less.

Property valueSDLT rate
Up to £250,000Zero
The next £675,000 (the portion from £250,001 to £925,000)5%
The next £575,000 (the portion from £925,001 to £1.5 million)10%
The remaining amount (the portion above £1.5 million)12%

Source: HM Revenue & Customs

Stamp Duty rates from 1 October  – The zero rate threshold drops again to £125,000, which is the same as before the stamp duty holiday started on 8 July, 2020.

Property valueSDLT rate
Up to £125,000Zero
The next £125,000 (the portion from £125,001 to £250,000)2%
The next £675,000 (the portion from £250,001 to £925,000)5%
The next £575,000 (the portion from £925,001 to £1.5 million)10%
The remaining amount (the portion above £1.5 million)12%

Source: HM Revenue & Customs

What is the 95 per cent mortgage scheme?

When the property market in England reopened last spring, only a handful of low deposit mortgage deals remained, as banks and building societies reined in 95 per cent mortgage offers in the wake of the coronavirus pandemic.

Although nearly a year on from the outbreak of the pandemic, lenders are starting to offer low deposit deals again, the number of high loan to value loans plunged from nearly 400 a year ago to just five last month. And these were mostly special deals that were not available to every customer.

To free up house sales, the Chancellor needs to give cash-strapped buyers who can’t afford large deposits an incentive to borrow. He also needs to sweeten the deal for banks and building societies.

This is where the 95 per cent mortgage guarantee scheme comes in, as an attempt to appease both sides and bring back the low deposit mortgages that he previously said had ‘virtually disappeared’.

The guarantee is straightforward.

The Government will guarantee the high loan to value portion of the mortgage, which ranges from 80 per cent to 95 per cent of a property’s value. The buyer stakes five per cent and the mortgage lender covers the rest.

If the borrower defaults and the property is repossessed, the Government will settle the guarantee.

Most of the big lenders have already signed up, including the high street banks Lloyds, HSBC, NatWest, Santander and Barclays.

However, there are some conditions:

  • The borrower must have a good credit rating
  • The home must cost no more than £600,000
  • The property must be the borrower’s main home – no holiday lets, second homes or rental properties are allowed
  • First-time buyers and movers can apply for the guarantee

Details about interest rates are still awaited, but the rate is expected to be around 3.5 per cent to 4 per cent and the Government is demanding lenders offer a five-year fix without any expensive product fees.

Affordability will be assessed in the same way as standard mortgages.

What we think about Budget 2021 for homebuyers

Although landlords don’t stand to benefit directly from the 95 per cent mortgage scheme, both these announcements are evidence of how in times of financial strain the Government will step in to keep the property market strong.

“With the Bank of England interest rate staying low, the Stamp Duty holiday extension and the 95 per cent mortgage scheme, along with the hope of coming out of this difficult period in history this is another sign of why people put their faith in bricks and mortar.” Daniel Lee, Principal of Total Landlord Mortgages.

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