How the UK Governments 2021 Budget Looked to Housing

The UK government recently delivered their spring budget, via the Chancellor of the Exchequer Rishi Sunak. There have been mixed feelings on the overall budget, however, it was one that was largely influenced by the current coronavirus crisis. Many of the proposed schemes looked to areas to help the economy bounce back from the devastation that COVID-19 has caused. To further support the population of the United Kingdom, the government again extended furlough schemes to September 2021 (whereby employers can temporarily furlough workers and the government will pay 80% of their wages). 

It increased welfare payments for those out of work, introduced ‘recovery loans’ to help businesses bounce back and so forth. The budget also looked to help entice buyers to the housing markets by extending schemes to make house buying easier for more people. As the housing market is central to the economy, it will play an important role in the UK’s economic recovery from the coronavirus pandemic.

Stamp Duty

Most of the schemes introduced in the UK governments budget were already in place in response to the COVID-19 pandemic. The ‘stamp duty holiday’ was one that was introduced last year, whereby the UK’s stamp duty tax on buying a house was lifted until the 31st of March 2021. Last year, Chancellor Rishi Sunak stated that the scheme “helped hundreds of thousands of people buy a home and supported the economy at a critical time”. However, an outpouring of calls from the industry showed that many purchases would not complete before the original deadline. In response, the stamp duty holiday has been extended. 

Now, until the 30th of June, the threshold of the stamp duty tax to start would remain at £500,000. After June 30th, the threshold will reduce to £250,000 until 30 September. After this, the Stamp Duty holiday will end and return to the £125,000. Stamp Duty is a percentage tax based a portion of the house price, increasing from 5% to 10% to 12%. 

The Guardian wrote: ‘The changes gave a boost to the share prices of housebuilders, with Barratt Developments and Persimmon ending the day as the biggest gainers in the FTSE 100 with 7% rises. Taylor Wimpey closed up 6%, while in the FTSE 250 Crest Nicholson, Countryside and Bellway were all up more than 6%. The phased change will mean that buyers who miss the June deadline will not face as big a bill as if the tax returned to normal straight away. However, there will still be an incentive for those buying expensive homes to compete their sales as soon as possible – someone paying £500,000 for a property will see the bill rise from £0 to £12,500 if they complete after June but before the end of October.’

Speaking to Huffington Post, Jo Thornhill a finance expert at MoneySuperMarket, said: ‘“An extension to the stamp duty holiday will be welcomed by those currently in the house buying process and concerned about losing the benefit before their sale goes through. But it may not be long enough for those yet to have offers accepted on a property and begin the process to get to the finishing line by the end of June.”

Lower Deposits

First time buyers would not have necessarily benefited from the Stamp Duty holiday, but extending on the government’s plan from last year that promised to turn ‘generation rent into generation buy,’ the government has now guaranteed 95% mortgages – a scheme that was introduced last year but was not widely adopted.

The Guardian wrote: ‘in the early days of the pandemic lenders pulled 95% mortgages, and many are still capping borrowing below 90%. Home loans for those with a 10% deposit have been reappearing, but many have strict terms and conditions for borrowers. Sunak said the government would offer a guarantee for lenders to encourage them to offer 95% mortgages again, with the scheme in place from April until the end of 2022. He said Lloyds, NatWest, Santander, Barclays and HSBC had already signed up, and that more, including Virgin Money, planned to follow.’ 

Previously, mortgages were more likely to require a 10-20% deposit depending on circumstances, which priced out a lot of first-time buyers from generating a deposit. 95% percent mortgages have been risky for both lender and buyer, which is why they are not normally widely available.  However, in this scheme the government has offered to take on some of the risk of the 95% mortgages, providing lenders with greater protection. 

Although a 95% mortgage will allow more buyers to purchase a home, Jo Thornhill stated to the Huffington Post, “It can be difficult for borrowers with only a 5% deposit to find competitive mortgage rates and deals, so any additional support to boost this sector of the mortgage market is helpful… But all borrowers should think carefully about mortgage affordability when buying a property. With only a 5% deposit you will be paying off the mortgage over a much longer period and interest rates could rise.”