- March 19, 2021
- Posted by: James Black
- Category: Economics
Budget 2021 – Now that the dust has settled, what does it mean for mortgages and property?
When Chancellor Rishi Sunak stood up to deliver his budget earlier this month, he was certainly delivering the most unusual one for many years. Naturally, we were avidly watching closely to see how getting a mortgage and buying a property would be affected by any changes. There was actually rather a lot in there that could impact the mortgage and property world but putting that aside for the moment, it is worth taking a breath to consider how strange the circumstances surrounding this budget actually were. We are coming out of a pandemic, there had been a break with the EU earlier in the pre-budget year, around 20% of the UK is currently on furlough and billions of pounds have already been spent on Covid relief. That is to name but a few of the unusual factors at play. Like him or hate him, you have to wonder how Rishi Sunak even started on a plan to deal with all that.
However, plan he did, and the result is really going to impact the housing arena in the coming months. In fact, there is so much to be said that we are going to split this over two blogs. In this one, we will look at the general property situation and next month specifically at mortgages. That said, they are of course intimately entwined so it is probably better to consider the two blogs as one bigger discussion.
So, turning to the general property market then, you have to generally say the budget was pretty good news for buyers. In particular, the question of a price crash because of the recent stamp duty holiday coming to an end was, if not answered, certainly addressed in other ways. The practical upshot was that the stamp duty holiday was extended. This came as no real surprise though because there has been a lot of pressure applied from the housing industry, via a public petition, and from inside Westminster, for the extension to happen. The big fear was that there would be a price crash and the market would stagnate if the holiday ended while we were still recovering from lockdown. There was also the considerable problem that the stamp duty holiday has resulted in a severe backlog of paperwork and processing. It would appear that on this occasion at least, the Exchequer listened.
The stamp duty holiday for properties up to £500,000 was extended until the end of June. This should keep the property market active over the second quarter whilst also allowing for the processing of property transactions currently bottlenecked in the system – this would be a big relief for many who were concerned about missing the deadline. The other slightly more surprising response was the extension of the stamp duty holiday on homes under £250,000 until the end of September, this will still offer a saving of £2500, not as appealing as the maximum of £15,000 that can be saved until June, but still not bad and should keep the market active.
Rishi Sunak made a big promise in the budget speech when he reiterated the government’s intention to ‘turn generation rent into generation buy. The budget is intending to support this promise, with the introduction of the 5% mortgage scheme. Under the scheme, applicants with a 5% deposit will have access to 95% loan-to-value mortgages.
First-time buyers, home movers and previous homeowners buying properties up to £600,000 are eligible. This should keep the market active even after the stamp duty holiday has ended and helped many out of renting and into owning – which is great.
So, are there any downsides? Well, yes. While overall the budget is optimistic and looks really promising for the property market, it would be wrong not to balance that a little. I suppose you could take a less optimistic view that from September we could see a drop in sales and that there could be a corresponding drop in value. That could result in negative equity for a short time, maybe. This is far from certain though and, to be frank, the concerns of the long term are not really any different than at any other time. There is always something bad possible but, as we all know, buying property is still one of the most secure investments you can make.
For now, Rishi Sunak has opened up a window to allow new buyers into the market and to allow those currently caught in the chain to complete their move with the stamp holiday in place. Our advice is to act quickly if you want to make the most of the favourable market right now.