Following on from speculation at the back end of last week that the Chancellor will use his Budget speech on Wednesday to announce an extension to the stamp duty holiday, this weekend’s news also suggests Wednesday’s Budget statement may have more glad tidings for buyers.
The past 12 months have made the housing market a challenging place for first time buyers to do business as lenders steadily withdrew or limited the available deals at the higher end of the Loan to Value spectrum.
Until the pandemic arrived, 95% home loans had become relatively commonplace, and even the odd 100% loan – all but extinct for a long time – cropped up on some lenders’ product lists, though these were still rare.
Then the UK went into lockdown and the housing market was effectively closed for three months. When it opened for business again at the back end of June into early July, those 95% loans began to disappear as mortgage providers took an increasingly pragmatic approach to lending.
Over the last six to eight months, first time buyers will have needed to find a minimum of 10% of the purchase price – and in many cases 15% – to put down as a deposit on their new home.
The Chancellor’s stamp duty holiday, which is now expected to be extended until the end of June this year, breathed new life into the market, but that hasn’t really helped first time buyers with small deposits.
Now Rishi Sunak is widely expected to underwrite a mortgage deposit guarantee for first time buyers which is designed to encourage lenders to reintroduce the 95% loans which the Treasure says ‘virtually disappeared’ during the pandemic.
Under the scheme, which will be available to lenders in April if the measures are passed into law by MPs when they debate the Chancellor’s Budget after he presents it to the Commons on Wednesday, the Government will guarantee a proportion of a home loan up to £600,000.
What this means in all practical sense, of course, is that the Government is making a financial investment into the market.
According to the Financial Times, this will inject confidence into the sector on the grounds that if the Treasury is financially exposed then the Government is more likely to act to prevent house prices from falling.
Indeed, one analyst quoted by the FT suggests the move could lead to a repeat of the spike in house prices that was triggered in part by the stamp duty holiday last summer.
The deposit guarantee scheme is said to resemble a similar scheme that ended in 2013 and helped an estimated 100,000 people to get a foot on the housing ladder.
Crucially, the proposed new scheme will also be available to existing homeowners who want to move but who may not have built up enough equity in their current home to represent 10% or 15% of the value of the home they might want to buy.
It’s too early to know exactly how the mortgage sector will react to the proposals and there is not yet any detail on how the scheme will be integrated into the mortgage application process.
However, subject to the Wednesday’s Commons announcement being confirmed, it seems that buyers with small deposits might want to start putting the wheels in motion for a post-April mortgage application.
With the stamp duty holiday expected to be extended to June, there will be an 8-week window in which to benefit from the new mortgage deposit scheme and the potential stamp duty savings that may be had if a transaction can be completed by June 30.
If you’re considering buying a first home, read our First-Time Home Buyer Questions To Ask A Mortgage Broker or contact our Putney mortgage team today to see how we can help you make your dream of home ownership a reality.
As a professional mortgage adviser, we can help you to be in the best possible position to take advantage of the Government’s incentives and secure the keys to your new home.
Oportfolio Limited is an appointed representative of Primis Mortgage Network, a trading name of First Complete Limited which is authorised and regulated by the Financial Conduct Authority. Your property may be repossessed if you do not keep up repayments on your mortgage. Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.