Budget Briefing: March 2021

It’s becoming increasingly clear that The Chancellor is putting the housing market near the top of his agenda to help aid the country’s economic recovery.  The package of measures announced today, will help people adjust to new post-pandemic lifestyles.

Stamp duty holiday extension

Arguably the extension of the stamp duty holiday was the most notable housing announcement reported today.   The Chancellor announced that the temporary stamp duty holiday that was introduced last July and meant residential buyers paid no tax on the first £500k of a property purchase, will be extended until 30 June 2021 on current terms and gradually phased out thereafter. 

Between September and October the nil rate band will be reduced to £250k, before returning to £125k from October onwards. While the extension of the holiday on current terms to 30 June will predominantly help buyers who have already had an offer accepted, the tapering from July to September will allow those thinking about moving to take advantage too.  The average home that exchanged last month was launched to sell 167 days beforehand.

Under the terms of the current holiday, 94% of buyers pay no stamp duty. This figure will fall to around half (54%) for homes completing between July and September and down to 16% for homes completed in October onwards.

Help to Buy mortgage guarantee

The Chancellor also announced a mortgage guarantee to help buyers with a 5% deposit. The Help to Buy mortgage guarantee, like the one introduced in 2013, is likely to see the government underwriting a proportion of the purchase price. For lenders, this inherently makes loans to buyers with a 5% deposit less risky, which should be reflected in lower interest rates.

With the government underwriting the first 20% of the purchase price, if current 95% LTV rates drop all the way to 75% LTV rates to reflect the lower risk to the lender, it has the potential to bring down the monthly cost of repayments significantly.  In Great Britain, this could equate to £165 per month or £1,978 per year for the average first-time buyer with a 5% deposit. Or by £6,105 in London.

While 95% LTV mortgages are typically more affordable in the north than in the south, the scheme is likely to have a larger impact for buyers in the south given that at present far fewer southern first-time buyers can afford to service a 95% mortgage.  If lenders offer those with a 5% deposit lower rates, it means the average household taking out a 95% LTV mortgage will go from having to earn just under £40k, to just over £30k.

As a result around 80% of first-time buyers will have the income to service a 95% LTV mortgage, up from 60% at present.  In London however, just 40% of first-time buyers will earn enough.

So what does this mean for the outlook of the housing market? 

So far this year the national lockdown has had a greater impact on the housing market than the looming end of the stamp duty holiday that was expected to end in March.  Last month saw 13% fewer homes coming onto the market for sale, yet demand has remained resolute, particularly for properties at the top-end of the market. 

Buyers continue to prioritise lifestyle over any economic concerns, and the introduction of a government-backed mortgage guarantee scheme will help buyers with smaller deposits – many of whom have struggled to buy over the last year.  

The phasing out of the stamp duty holiday will primarily benefit those who are already in the market, but it also means that the drop off in activity at the end of the holiday in September 2021 will be much smaller than after previous holidays. We think the extension of the holiday will lead to an additional 100,000 property transactions in Great Britain in 2021, boosted by a stronger economic recovery.