The 2021 Budget of 3 March 2021 provided welcome news for the residential property industry.
The Chancellor, Rishi Sunak, outlined proposals to extend the current Stamp Duty Land Tax (“SDLT”) holiday and introduce a government-backed scheme to encourage the return of 95% mortgages.
So, what does this mean in reality?
How does the 95% mortgage scheme work?
During the past 12 months mortgages that require only a 5% deposit i.e. a loan to value of 95%, have all but disappeared. Lenders have withdrawn the majority of these deals as borrowers with such a small deposit are considered to be a high risk by the lenders.
The Government is therefore offering to share that risk with the mortgage companies. The Government will guarantee the part of the mortgage which is over 80%. So, with a 90% mortgage, for example, the Government will guarantee the remaining 10%. This means that should the borrower fail to keep up with repayments and the property is ultimately repossessed by the lender, then the Government will compensate the lender for the relevant percentage of the mortgage. It is hoped that the proposed scheme will encourage lenders to offer a 95% mortgage again with a view to assisting more buyers and ultimately the property market.
The scheme will cover parties buying a property with a maximum purchase price of £600,000 that will be lived in by the party buying, rather than rented out. The mortgages must be on a repayment basis only and the deposit must be no more than 9% of the value of the property. The usual credit checks and affordability questionnaires will apply in all circumstances and specific conditions of the mortgage will be down to each individual lender.
The proposed scheme will start for new mortgage applications in April 2021 and continue until the end of December 2022.
Already several of the UK’s larger lending instead institutions have begun advertising these 95% mortgages from April 2021.
Is there still time for buyers to take advantage of 95% mortgages and the extended SDLT holiday?
Alongside the 95% mortgage scheme, the Chancellor announced an extension to the SDLT holiday until the end of June 2021.
The SDLT holiday until June works in the same way as the current SDLT holiday, which we discuss in our February article, available here.
Taking advantage of both the 95% mortgages and the SDLT holiday is still perfectly possible in the timeframe available. Buyers who are considering doing this should be mindful to progress matters quickly, submit their mortgage applications and instruct a property lawyer with all speed, as the savings to be made are significant.
This article is provided by Burlingtons for general information only. It is not intended to be and cannot be relied upon as legal advice or otherwise. If you would like to discuss any of the matters covered in this article, please contact Caroline Turner or write to us using the contact form below.