Budget 2021: stamp duty holiday extension and mortgage boost for first-time buyers

The Chancellor today handed a lift to home movers and first-time buyers by announcing an extension to the stamp duty holiday and pledging to create low-deposit mortgages extensively available.

In his Budget speech, Rishi Sunak announced the current tax cut for homebuyers in England and Northern Ireland would be extended until 30 June and then tapered from 1 July until 30 September. He claimed this would prevent hundreds of thousands of sales from falling through.

Sunak also promised to unlock homeownership for first-time buyers, by launching a scheme in which the government will guarantee 95% mortgages to help people on to the property ladder.

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Government extends stamp duty holiday

After months of rumours and campaigns, the government has extended the stamp duty holiday past the original deadline of 31 March.

The temporary lb500,000 nil-rate band in England and Northern Ireland will apply until 30 June, before being reduced to lb250,000 between 1 July and 30 September.

From 1 October, the normal threshold of lb125,000 for home movers will return.

No changes have to date been announced for Scotland and Wales, but the government says both countries have obtained additional funding to provide similar support.

The extension uses concerns were raised that a large number of property purchases could fall through because of delays in mortgage approvals and conveyancing.

Announcing the reforms, Mr Sunak said: ‘The stamp duty cut helps hundreds of thousands of people purchase a home and supported the economy in a critical time.

‘But because of the sheer volume of transactions we’re now seeing, many purchases won’t complete in time for no more March.’

What may be the stamp duty holiday?

The stamp duty holiday was originally introduced in July 2021 to inspire house moves after the Covid-19 lockdown.

Under the present rules, homebuyers in England and Northern Ireland don’t have to pay any tax on the first lb500,000 from the property price, meaning many aren’t paying any stamp duty whatsoever and people buying pricier homes are saving to lb15,000.

Between 1 July and 30 September, the tax-free threshold will be lb250,000, meaning home movers can save up to lb2,500 compared to the normal rates.

The stamp duty holiday has led to a mini boom of both house prices and property purchases: house prices rose by 8.5% year-on-year in December according to the Land Registry, while HMRC figures show that transactions were up 24% in contrast to December 2021.

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Government pledges to ensure 95% mortgages

The Chancellor also announced a new mortgage guarantee scheme to assist first-time buyers jump on to the property ladder.

The scheme calls for the government guaranteeing 95% mortgages, giving lenders the confidence to reinstate the low-deposit deals which had been withdrawn because the start of pandemic.

The Chancellor states that major lenders for example Barclays, HSBC, Lloyds Bank, NatWest and Santander will be offering deals from April, with others including Virgin Money to follow soon after.

The scheme will be on new and existing properties priced as much as lb600,000 and will allow buyers to fix their initial type of loan for at least five years. It'll apply through the UK and can run until 31 December 2022.

Will the brand new scheme help much first-time buyers?

The government looks to recover 95% mortgages in a big way, but two significant challenges remain.

Firstly, rates on low-deposit deals are very high at the moment, using the cheapest 90% mortgages around 1.3% more costly than before the pandemic.

With 90% deals costing more than 3%, 95% mortgages might be much more expensive.

Secondly, the scheme won’t necessarily make property more affordable for first-time buyers; rather it'll assist them to borrow more to afford a property.

If house prices remain high, some first-time buyers may find it difficult to get on the ladder even with the aid of the brand new scheme.