Rishi Sunak’s budget today was always going to be about COVID, and how we are going to support the economy, jobs and businesses whilst keeping an eye on paying back the massive bill that has come as a result of the measures taken by the treasury over the last year.
Amongst all that there were a couple of items that caught my attention relating to the housing market and mortgages.
First of all, as expected, he extended the stamp duty holiday for a further three months on property purchases up to a value of £500,000. If the purchase price is higher than £500k then you don’t pay for the portion of the price below £500k.
This will be a relief to those whose property purchases have stalled in the last few months and to those who are still looking for a property. I would still get my skates on if you are hoping to take advantage of this as June will come around quickly. The saving is up to £15,000 so worth having.
Something else of major interest was a return to the 95% mortgage market. This area disappeared at the end of March last year. I think lenders were fearful of returning to that market due to the uncertainty over the economy, and if house prices took a hit then their security would be at risk. This was the case after the financial crisis of 2008 and subsequent recession.
It looks like the treasury will be offering the same solution now as they did back then, The Chancellor mentioned a guarantee system where the government would essentially underwrite the mortgages taken out by buyers at the 95% mortgage level.
It is going to be of huge benefit to first time buyers struggling to save for a deposit. The Chancellor announced the following lenders: “Lloyds (presumably this means Lloyds Banking Group so Halifax and Scottish Widows will be included), Nat West, Santander, Barclays and HSBC” will be offering mortgages from next month.
We do not as yet know what rates are likely to be on offer. It is a possibility though that with government underwriting the mortgages it may encourage lenders to offer more competitive rates than they previously did at this level. This may then trickle further down the market to give lower rates at the 90% and below level. Currently all the best deals are at 75% and below and there’s quite a jump when you get above 80% lending.
All in all I think it was a positive budget for the housing market in the short term. There will be inevitable calls for the stamp duty holiday to be extended beyond the end of June the closer we get to that date, and I do think there is something that could be done as I wrote here last month, however Mr Sunak did stress that all this borrowing needs to be paid back so he is caught in a dilemma. Personally I think he will draw the line in the sand with the stamp duty and hope that with the 95% mortgages returning that will prop up the housing market and any slowdown will be a temporary blip. Time will tell.
