A big thumbs up to Rishi Sunak from all of us at The Property Angel.
By far and way the biggest and best announcement for the property market from yesterday's UK Budget and in fact for a long time was not the extension of the stamp duty holiday until the end of June 2021 or tapering of it until the end of Sept 2021, but it was the confirmation of the new Mortgage Guarantee Scheme.
Once again Rishi Sunak has proved his worth and stepped up with a scheme which will get the property flywheel moving again at the lower end of the market where it had almost ground to a halt. It's a scheme which crucially helps not just first time buyers but also home movers too, who have until now been caught in no man's land caused by Help to Buy incentive schemes making the sale of their homes uncompetitive against similar new build properties.
As we called for in our article of 27th August 2020, this anomoly has now been corrected and paves the way for a badly needed increase in supply of homes being put up for sale without the government taking a share in the uplift of the future property value. It also provides the stimulus to get people moving instead of saving and not only helps Generation Rent become Generation Buy, but also helps Generation Stuck (in too small a property) become Generation Happy in their perfect sized next home.
Well done Rishi and your team-truly innovative and showing great leadership and vision when it's been needed.
Highlights of the Scheme and my own thoughts on in it are as follows:-
- The scheme is intended as a temporary measure and will be open for new mortgage applications from April 2021 to December 2022.The government has limited their contingent liability to £3.9 billion under this scheme, but it is designed to help first time buyers and more importantly existing homeowner first time sellers with limited equity to move and free up stock for first time buyers. I think this will just be a limited time scheme rather than one to be extended like the various Help to Buy schemes of the past. Why? -Capital Gains Tax Simplification.
- Capital Gains Tax simplification is likely to be consulted upon from 23rd March 2021. I expect to see an announcement in the Autumn statement that CGT rates will be increased in line with income tax rates from April 2023 or 2024 at the latest. This will give landlords 2-3 tax years to sell some or all of their buy to let properties, providing more stock for First Time Buyers to plug any shortfall from existing homeowners after the mortgage guarantee scheme ends.
- A mortgage eligible for a guarantee under the scheme will need to:
(a) be a residential mortgage (not second homes) and not buy-to-let
(b) be taken out by an individual or individuals rather than an incorporated company
(c) be on a property in the UK with purchase value of £600,000 or less
(d) have a loan-to-value of between 91 -95 per cent
(e) be originated between 1st April 2021 and 31st December 2022
(f) be a repayment mortgage and not interest-only
(g) and meet standard requirements in terms of the assessment of the borrower’s ability to pay the mortgage, for example a loan-to-income and credit score test
- It will be a requirement that any lender participating in the scheme must offer a five-year fixed rate product as part of their range of mortgages offered.This is another attractive reason for first time sellers to get involved just now to fix and get certainty over their monthly payments for the next 5 years at a time when interest rates are historically low.
- Lenders have to pay the government a commercial fee for each mortgage in the scheme.I strongly suspect this will be passed onto the borrower and be a % of the amount borrowed but may be allowed to be added over the term of the mortgage. My own view is that this should not put someone off taking out a mortgage using this scheme if it’s their only way of getting on the housing market.
More details of the scheme can be found here
In the meantime, The Property Angel is here to provide free guidance and support through the property minefield, to anyone thinking of moving home, be they first time buyers or home movers and Im always happy to jump on a zoom call to have a chat about any aspect of the journey from your first thought of moving to your first night in your next home-we're here to make sure you get to your perfect next home simply and stress-free.
Book your zoom call here
I look forward to hearing from you
Founder and CEO
The Property Angel.