The impact the pandemic has had on the residential property market in 2020 left UK buyers and sellers eagerly awaiting the release of the Budget 2021.
During 2020, we saw the housing market fluctuate as house prices were impacted by a series of national lockdowns, rising unemployment rates and financial uncertainty.
Stamp duty holiday extension
The stamp duty holiday, which was set to end on March 31st, has been extended until June 30th. The introduction of the stamp duty holiday in 2020 meant homebuyers haven’t had to pay stamp duty on homes worth up to £500,000. With the holiday initially set to end in March 2021, the three-month extension means buyers and sellers can breathe a sigh of relief.
After June 30th, the government will ease the transition of the stamp duty holiday back to normal rates by reducing the threshold to £250,000 until the end of September. From October 1st, the stamp duty threshold will return to the normal level of £125,000.
How does the extension help buyers?
The extension of the stamp duty holiday is good news for buyers who faced financial difficulties because of the pandemic. For buyers and sellers feeling like their transactions weren’t happening quickly enough, the extra three months will help to ease worries and make sure they can benefit from the significant savings the holiday provides.
The government hopes that the extension of the stamp duty holiday will boost the property market once again, as it did when the holiday was initially introduced in 2020. Buyers and sellers are once again encouraged to act quickly to take advantage of completing transactions in time.
Property market experts expect to see a rise in the number of properties listed and offers placed quickly over the next few months as buyers and sellers make the most of the three-month extension and reduced threshold until September.
Mortgage guarantee scheme
The new mortgage guarantee scheme means buyers can purchase houses worth up to £600,000 with a 5% deposit. The mortgage scheme is open to both current homeowners and first-time buyers from April to help those in a position to buy a home do so.
Typically, buyers have to present a deposit of 10-20% to convince lenders to approve a mortgage. Where buyers present a small deposit of 5%, lenders are less likely to approve the mortgage because of doubts that the buyer will be able to pay the full amount back.
This was worsened by the effects of the pandemic. The pandemic made low deposits relatively impossible to find, with just eight on the market in January. This was due to rises in unemployment and cuts to financial income. It was therefore difficult for first-time buyers to secure a place on the property ladder without saving a large sum of money first.
With the mortgage guarantee scheme, buyers will still undergo affordability checks to make sure they can pay back the amount of money lent to them. The scheme will incentivise mortgage lenders to provide mortgages with a deposit of 5% with the guarantee that they can pay the remaining 95%.
How does the new scheme help buyers?
The government’s mortgage guarantee scheme hopes to encourage more first time buyers to get their feet firmly onto the property ladder. It will help renters buy their first home and homeowners move properties without the need to save 10-20% of the house price.
There has been some criticism of the mortgage scheme. Renters often don’t have enough savings to pay even a 5% deposit and maintain enough income to cover the regular repayments.
The scheme provides major banks with the guarantee that they will be paid back by the government if buyers lapse on their repayments. This means buyers have access to 95% mortgages from most major lenders compared to last year where low deposit mortgages were a rarity.
How will the schemes boost the residential property market?
Both the extension of the stamp duty holiday and the new mortgage guarantee scheme hope to boost the residential property market. Homebuyers and movers are a crucial part of the UK’s economy, and a rise in buying and selling is going to play a huge role in recovering the economy throughout the pandemic.
The schemes hope to encourage enthusiasm for buying and selling properties again as the initial schemes did back in March 2020.
The stamp duty holiday extension gives buyers and sellers a greater chance of completing their transactions in time for the deadline and prevents buyers and sellers from pulling out of the purchase process.
The mortgage guarantee scheme will cause competition between mortgage lenders for buyers. This could provide the market stimulation needed to help rebuild the UK economy.
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