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Rishi Sunak's Budget Gives Boost To Generation Rent

Rishi Sunak’s Spring Budget provided good news for first-time homebuyers.  Not only was the Stamp Duty Land Tax (SDLT) holiday extended until the end of September 2021 (more on this below), but Mr Sunak announced the government will back a new mortgage guarantee scheme, allowing qualifying buyers to borrow 95% loan to value.

Boris Johnson’s government is determined to turn ‘Generation Rent’ into ‘Generation Buy’.  Speaking at last year’s Conservative Party Conference, he said it was “disgraceful” that the level of homeownership for those under 40 had plummeted in recent years.  He told the Party faithful:

“We need now to take forward one of the key proposals of our manifesto of 2019: giving young, first-time buyers the chance to take out a long-term, fixed-rate mortgage of up to 95% of the value of the home – vastly reducing the size of the deposit.”
The Chancellor confirmed in his budget that the scheme would go ahead from April 2021 and run through to 31 December 2022.

How does the low-deposit mortgage scheme work?

First-time home buyers may vaguely remember the ‘bad old days’ of pre-2007-08 when almost anyone could acquire a 90/95% or even 100% mortgage with little (if any) affordability tests being conducted.  When the value of housing markets around the world imploded, the worst financial crisis since the 1930s Great Depression was triggered, leading banks and other financial institutions to toughen up on lending and the virtual disappearance of low loan to value lending.  In December 2019, the Bank of England reported that the proportion of low-deposit mortgages associated with the financial crisis had hit its highest level since 2008.  However, three months later, the country was plunged into lockdown and, due to the uncertainty of the effect of the Coronavirus pandemic on jobs and the economy, 90/95% mortgages once again vanished.  This has resulted in first-time buyers finding it almost impossible to get on the property ladder, especially in London and the South East, where house prices are significantly higher than the national average.

Following the Chancellor’s announcement, 95% government-backed mortgages will be available to all buyers of properties costing up to £600,000.  According to a study by Rightmove, this accounts for 86% of all homes currently on the UK property market.

All buyers will also be able to fix their initial mortgage rate for at least five years during the scheme’s lifetime.

Mr Sunak confirmed that “several of the country’s largest lenders including Lloyds, Natwest, Santander, Barclays and HSBC will be offering these 95% mortgages from next month.”

He went on to say “more, including Virgin Money will follow shortly after.”

There is a risk to buyers that due to the (as yet unknown) economic effects of the Coronavirus pandemic, property prices will tumble and those with high loan to value mortgages will fall into negative equity.  To mitigate this risk, it is important to discuss the details of your mortgage loan offer with a Residential Property Solicitor, who can advise you on the legal rights of all contracting parties should a negative equity situation occur.

How long is the Stamp Duty holiday being extended for?

In further good news, it was announced that the SDLT nil band is to continue to be extended to £500,000 up until 30 June 2021.  Furthermore, to prevent the non-completion of sales leading up to 30 June, the nil-rate band will be phased down in stages rather than abruptly ending.

Date of property acquisition

SDLT nil-rate band

 8 July 2020 – 30 June 2021

£500,000

 1 July 2021 – 30 September

£250,000

 1 October 2021 onwards

£125,000

In summary- The Brethertons View

The Spring Budget announcements concerning government-backed low-deposit mortgages and the extension of the SDLT holiday will allow many first-time buyers to realise their dream of owning a home. 

Finding the suitable home is the first stage. Other considerations you can expect a lawyer to raise with you are:-

  1. How will the property be owned? If jointly on death will you want your share of the property to go to the joint owner. May not be an issue if the property is owned with your partner. Certainly could be an issue if you have purchased with a friend.
  2. As a property owner you have a valuable asset. On your death, who should it be left to? We will encourage you to seriously think about making a will.
  3. Have any loans come from third parties which may need to be protected by a declaration of trust?
  4. If the property is leasehold are you fully aware of your obligations under the lease. The lease is certainly likely to restrict how you occupy the property. You must be aware of your rights and obligations.
  5. If you are purchasing as a Shared Ownership or with Help To Buy the transaction will be more complicated.

To ensure that your best interests are protected, and the conveyancing process runs smoothly, it is well worth investing in a Residential Conveyancing Solicitor who is highly experienced in both their knowledge of the law, the conveyancing process, and the area where you are buying.

Emma Crocker is a  Senior Associate in Brethertons in the Residential Conveyancing Team

To speak to one of our Residential Property Solicitors, please email info@brethertons.co.uk or phone 01295 270999 (Banbury Office), 01869 252161 (Bicester Office), or 01788 579579 (Rugby Office).