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Budget 2021: What does it mean for homeowners, buyers and sellers?

Chancellor Rishi Sunak gave his highly-anticipated Budget this week which included major announcements that will affect homeowners and home movers. Here’s what you need to know…

5 minute read

2021 Budget

There’s a new mortgage guarantee scheme

The Chancellor announced a new mortgage guarantee scheme, aimed at helping buyers get a mortgage with a 5% deposit.

Under the scheme, the government will give a guarantee to lenders across the UK that offer mortgages to people with just a 5% deposit. This should mean a return of 95% mortgages, which virtually disappeared when the pandemic started.

Major providers including Lloyds, HSBC, NatWest and Barclays are already on board with the scheme, which starts next month. You can buy any type of property worth up to £600,000 through it, not just new builds. And first time buyers and existing homeowners can apply.

It will be available for new mortgages up to 31st December 2022 – so you have 18 months to take advantage. And you’ll be able to fix your initial mortgage rate for at least five years if you wish to. However, you’ll still need to tick the usual boxes when getting a mortgage. This includes having a regular income, a good credit rating and to be able to afford the monthly mortgage repayments.

Mortgage guarantee ‘Good news – but explore your options’

HomeOwners Alliance Chief Executive Paula Higgins says, ‘It’s great news that the main providers are already on board for when the scheme goes live next month – this was lacking in the previous Help to Buy mortgage guarantee scheme which ended in 2016.  We also welcome the fact anyone can use the scheme, not just first time buyers.

‘However, we know from experience that these mortgages weren’t cheap so it’s essential that people shop around,’ warns Paula. ‘And buyers may be able to get significantly cheaper deals if they can save a 10% deposit.

‘Aspiring homeowners should also be aware of other measures available to help them,’ adds Paula. ‘These include the Lifetime ISA; if you are under 40 you can save into these and the government will give a 25% bonus of up to £1,000 a year on any savings deposited. Also, the Help to Buy: Equity Loan Scheme allows people to buy a new build home with a 5% deposit; however under new rules this is now only open to first time buyers with regional price caps that aren’t as generous.’

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Stamp duty holiday extension

The second major announcement the Chancellor made that affects homeowners is that he confirmed speculation the ‘stamp duty holiday’ will be extended. The measure, which means homebuyers don’t pay stamp duty on the first £500,000 of a property’s value, came into force last July and was due to expire at the end of this month.

The holiday as it stands will be extended until the end of June. Then, from 1st July 2021 until 30th September 2021, the rules will change so that no stamp duty will be paid on the first £250,000 of the property’s value, before returning to £125,000 on 1st October 2021.

The extension will be welcomed by homebuyers who’ve been worried about facing stamp duty bills of up to £15,000 if they were unable to complete the purchase of their new property by the end of March deadline.

However, there’ll be a limited number of new buyers who’ll be able to take full advantage of the scheme. This is because it’s taking much longer than normal for transactions to complete, due to the workload of conveyancers and the delays to receiving critical local searches.  There has also been increased competition as there are more buyers than sellers on the market.  So, you’ll need to agree an offer this month in order to be likely to complete before the June deadline. Added to the time pressure, stamp duty is due when you complete on a property, so an early exchange won’t help.

Also, the extension is unlikely to benefit you if you’re buying your first home as first time buyers don’t generally pay stamp duty. However, first time buyers will be competing for similar properties with investors – who are not excluded from using the stamp duty holiday. See our advice guides for full details on the latest changes to stamp duty, tips on how to speed up your sale and stamp duty for second homes.

Stamp duty extension ‘Good news for some – but don’t bank on savings’

HomeOwners Alliance Chief Executive Paula Higgins says, ‘The extension is good news for homebuyers who were concerned they were going to be hit by a huge stamp duty bill if they completed their purchase after the March deadline.

‘However, while we support the extension and the tapering of the scheme, consumers should be careful not to see the stamp duty holiday as providing big savings, as house price increases may wipe out any gains,’ she says. ‘Our advice is to think of it as a bonus – and don’t factor it in when you’re thinking of making an offer.

‘Ultimately, we would like to see stamp duty abolished as we see it as a barrier to people moving home.’

In other stamp duty news, the Chancellor also announced that a 2% stamp duty surcharge on non-UK residents buying properties, which was announced in the last Budget, will take effect from 1st April 2021 as planned.

With current transaction times – time is of the essence

Since the introduction of the stamp duty holiday and an increase in transactions as a result, average property transaction time has gone from 12 weeks to 16 weeks. This four month timescale to complete a purchase means new buyers will need to have agreed an offer in March in order to take advantage of the stamp duty extension on properties up to £500,000 and by May to take advantage of the nil rate band on properties up to £250,000. See how you can speed up your property transaction

Other key announcements

Aside from issues impacting homeowners, the Chancellor made a number of announcements that will affect people across the board.

There will be no changes to income tax or national insurance. However, it was announced that the personal income tax allowance will be frozen at £12,570 from April 2022 to 2026. Similarly, the higher rate income tax threshold is to be frozen at £50,270 from 2022 to 2026.

In better news for consumers, alcohol duties will be frozen for the second year running. While fuel duty is to be frozen for the 11th consecutive year.

What’s missing?

It was surprising there was no news of the pulling of the Green Homes Grant, which was widely-anticipated. The scheme was due to end on 31st March 2021. But after calls from consumers struggling to book installers, the government extended the scheme to 31st March 2022.

However, the government subsequently made a u-turn by drastically reducing the funding available with no commitment to run the scheme to new applicants beyond the end of this month.

Therefore, homeowners should apply for vouchers before the end of March if they want to take advantage of it.

Also, we have supported the Federation of Master Builders and the Royal Institution of Chartered Surveyors’ Cut the VAT campaign. This has called to reduce VAT on home repair, maintenance and improvement works to 5% for a temporary five-year period.

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