Stamp Duty Changes and 95% Mortgages Explained – Part 2


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On Wednesday 3rd March 2021 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 second of two parts examining the changes. The first focused on the temporary stamp duty holiday changes which you can read here. In this part we look at the 95% Mortgage Guarantee Scheme and what impact, if any, it may have for first time buyers & the property market.

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

The chancellor made two key announcements in his budget:

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.
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 happened to 95% Mortgages?

Looking back to immediately before the pandemic, even as late as February to March 2020 there were hundreds of mortgages deals offering 95% borrowing with only 5% deposit. As the seriousness of the pandemic started to become clear & the first lock down started these deals virtually disappeared overnight.

Essentially the uncertainty of the pandemic & ensuing financial fallout, lending at such a high level became even more of a risk given a potential fall in house prices & therefore leading to increased risk of negative equity (where the value of the property is lower than the mortgage amount).

What about the help to buy scheme?

The Help to Buy scheme is a separate scheme where part of your purchase is funded via a government loan that starts to be paid back after 5 years. You can read more about this in our guide here.

How will The Mortgage Guarantee Scheme work?

Effectively the scheme is designed to encourage lenders to offer 95% LTV mortgages by providing an option to buy a guarantee for the portion of the loan between 80% to 95%.

This provides cover for lenders for this portion of the mortgage should the worst happen & a borrow gets into trouble & has their property repossessed.

If the lender then sells the property & it is for less than the value of the loan the government will pay for the portion under guarantee. The scheme is scheduled to start from April 2021 and run through to the end of 2022.

What do we know so far about eligibility for the 95% Mortgage Guarantee Scheme?

  • The cap on purchase price for the scheme is £600,000, so your property has to cost less than that.
  • It is only for standard residential mortgages so you can't use it for second homes or buy to lets.
  • The mortgage must be on a repayment basis.
  • Borrowers are expected to pass credit checks to show their credit worthiness.
  • Normal affordability rules will also apply.
  • The scheme is not limited to first time buyers only.

So far we understand that several of the largest lenders have signed up to scheme including HSBC, Barclays, Santander, NatWest & Lloyds. Other lenders are likely to participate as well, we understand Virgin Money will also join the scheme shortly afterwards.

What will the interest rates be?

Until the products are released, we don’t know what the rates will be, however at the moment the lenders who have signed up to the scheme are offering rates on 90% mortgages of between 3% to 3.5% so we expect 95% deals to be offered in excess of these.

We think that as more lenders sign up the scheme and more 95% deals are made available, we’ll see more competitive rates, but this could take some time to work its way through the system.

Will property prices increase as a result of the 95% Mortgage Guarantee Scheme?

Its possible that house prices increase in the coming months. Halifax reported house price growth in February 2021 of 5.2%, down from 5.4% in January – despite this small drop the growth is still strong.

However its still likely that there are more economic impacts from the pandemic to come & this could lead to a slow down resulting a plateau or even a fall in house price growth. The simple truth is that in these unprecedented times no one can be sure what is likely to happen the short to medium term.

What should you do next?

Firstly, its important not to rush there is plenty of time to take advantage of the scheme so you can continue saving for your deposit.

Secondly we’re here to help you get mortgage ready & help you get into the best possible position to take advantage of the scheme & guide you through the whole process.

Book an appointment now with one of our mortgage experts.

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