A phased end to the stamp duty holiday and a government guarantee for 95% mortgages will turn “generation rent” into “generation buy”, the chancellor claimed on Wednesday.
Rishi Sunak said the stamp duty holiday he announced last summer had “helped hundreds of thousands of people buy a home and supported the economy at a critical time”, but that many purchases would not complete before the original deadline of 31 March.
Responding to calls from the industry for a tapered extension to prevent buyers facing unexpected bills, he said that in England and Northern Ireland the threshold for the tax to start would remain at £500,000 until 30 June.
Budget means tax rises ahead – and little new for first-time buyersRead more
After that, it will be reduced to £250,000 until 30 September, before returning to its original level of £125,000.
The changes gave a boost to the share prices of housebuilders, with Barratt Developments and Persimmon ending the day as the biggest gainers in the FTSE 100 with 7% rises. Taylor Wimpey closed up 6%, while in the FTSE 250 Crest Nicholson, Countryside and Bellway were all up more than 6%.
The phased change will mean that buyers who miss the June deadline will not face as big a bill as if the tax returned to normal straight away.
However, there will still be an incentive for those buying expensive homes to compete their sales as soon as possible – someone paying £500,000 for a property will see the bill rise from £0 to £12,500 if they complete after June but before the end of October.
First-time buyers previously benefited from not having to pay stamp duty on properties costing up to £300,000, but Sunak said that even with no tax to pay raising a deposit presented a “significant barrier” to getting on to the housing ladder.
In the early days of the pandemic lenders pulled 95% mortgages, and many are still capping borrowing below 90%. Home loans for those with a 10% deposit have been reappearing, but many have strict terms and conditions for borrowers.
Sunak said the government would offer a guarantee for lenders to encourage them to offer 95% mortgages again, with the scheme in place from April until the end of 2022.
He said Lloyds, NatWest, Santander, Barclays and HSBC had already signed up, and that more, including Virgin Money, planned to follow.
Lloyd Cochrane, the head of mortgages at NatWest Group, said: “For those customers with smaller deposits looking for a mortgage, particular younger or first time buyers, saving up for a big deposit can often be difficult, and we know people in these groups are some of the hardest hit by the effects of the pandemic.
“A government-backed mortgage guarantee scheme will help segments of the market for whom home ownership has felt far out of reach in recent months.”
The scheme will apply to homes costing up to £600,000 and is not restricted to first-time buyers, or people who are moving. Lenders will be obliged to offer a five-year fixed-rate mortgage as part of the scheme, to give borrowers the chance to opt to secure their monthly repayments.
The announcements were welcomed by the property industry, with many describing the stamp duty extension as bringing “relief” to buyers.
Property firm Hamptons said dropping the threshold to £250,000 until September meant that more than half of buyers in England would pay no stamp duty, compared with 94% now and 16% from October.
Some said buy-to-let investors would be keen to use the extension to increase their portfolios.
Law firm Wilsons said in the fourth quarter of 2020 61,800 buy-to-let properties, the highest quarterly figure since 2017, and that the tax break had been a “significant contributor” to the rise.
Imogen Lea, a tax consultant at Wilsons, said: “The welcome three-month extension to the SDLT holiday gives potential property investors a second chance to purchase with no SDLT up to £500,000.”
“The extension to properties valued at £250,000 or less, which will be introduced in July and run to 30 September, could see more sustained growth in buy-to-let investments in parts of the country where property prices are lower, or in smaller dwellings.”
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The Social Market Foundation thinktank said the Treasury’s interventions were “not what the UK economy needs” and failed to support some of the country’s most vulnerable households.
Jake Shepherd, a researcher at the SMF, said: “Instead of rolling out more measures that risk inflating house prices further, the chancellor should have done more for people who rent, too many of whom are in arrears.
“He should also pay more attention to the hundreds of thousands of existing mortgageholders who have had to use up savings during the crisis and risk repossession if their incomes suddenly fall”