Stamp Duty Changes and 95% Mortgages Explained – Part 1


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On Wednesday the Chancellor, Rishi Sunak, announced two key proposals in his March 2021 budget that impacts first time buyers & anyone looking to move home or invest in property. We look at the chancellors plans in a little more detail and how it may impact our clients.

This is the first of a two-part update for all our clients looking at the two key announcements that the chancellor, Rishi Sunak, made in his March 2021 Budget. This first part focuses Stamp Duty.

So, what were the announcements made on Stamp Duty and 95% Mortgages?

The chancellor made two key announcements in his budget:

  • Stamp Duty - The current stamp duty holiday will be extended to 30th June, the nil rate band will then apply to properties valued at £250k until the end of September before returning to the pre-holiday level of £125k from 1st October 2021.
  • Mortgage Guarantee Scheme - A new mortgage guarantee scheme enabling 95% mortgages to be available to first time buyers on properties up to £600,000. This will begin in April 2021 & is expected to last until the end of 2022.

What does the extension stamp duty mean for me?

Early in the pandemic the government announced a “temporary holiday” for stamp duty. This holiday meant that the first £500,000 for anyone buying property (as their main home) would be tax free, offering a potential saving of £15,000.

This "holiday" was due to end on 31st March 2021 however due to the sheer size of the backlog of people moving home & first-time buyers already in the process it would have meant thousands missing out on this date creating effectively a “cliff edge”.

To ease this, the temporary period has been extended to 30th June 2021. This should mean that first time buyers & those moving home already in the process should complete in time to benefit from the holiday.

What if you are just starting the process? Can I benefit from the extension?

If you are still looking for a house there are three things that will determine if you will be able to complete in time to benefit from the stamp duty holiday:

  1. 1
    Are you mortgage ready? Have you already spoken to us about your circumstances & understand your borrowing potential.
  2. 2
    Conveyancing timescales? Local authorities across the country have backlogs and local searches are taking longer than normal – typical completions are average 4 to 5 months.
  3. 3
    How large is your chain? If you are a first time buyer & lucky enough to find a property with no chain then this will make things easier – once you start linking more transactions to your purchase then there is more complexity & chances for delays to completion.

In our view it's not likely that if you start the process now you will complete in time to benefit from the full £500,000 tax free amount.

But what about the tapered reduction to stamp duty?

Along with the extension of the holiday period, the chancellor, also announced that the return to normal stamp duty levels will be phased. From 1st July 2021 the tax-free rate will reduce to £250,000 from £500,000 – still providing a substantial saving depending on the price of your purchase.

The positive news for First Time Buyers the original £300,000 threshold will apply from 1st July 2021. For example:

Example based on a purchase price of £450,000

First time buyer

Non First TIme buyer

second home/buy to let

To 30th June 2021

£0

£0

£13,500

1st July to 30th Sept 2021

£7,500

£10,000

£23,500

1st October 2021 Onwards

£7,500

£12,500

£26,000

What happens to stamp duty from 1st October 2021?

From 1st October 2021 stamp duty return the levels prior to the introduction of the temporary holiday which can be found here.

With rates for First Time Buyers having relief to £300,000, paying 5% on value between £300,000 to £500,000 and then following the above for any purchase above £500,000. The additional higher rate charge of 3% for second properties or buy to lets continues to apply throughout.

In part 2 we’ll take a look at 95% mortgages & some thoughts on what impact they will have on first time buyers & the property market as a whole.

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