Chancellor, Rishi Sunak, announced his budget 2021 plans in the House of Commons earlier today, setting out measures for the coming months and years to keep a handle on the public finances after the increase in public spending caused by the COVID-19 pandemic. As a general overview, borrowing will continue at a higher than average level for the next year or two, before the government start to introduce measures in order to bring it back in line with normality.
Looking to the short term though, the budget held some great nuggets for both investors and first-time buyers alike, so let’s have a look at what was announced, and how it might benefit you.
Stamp duty holiday extended
This has been a big talking point within the industry, with it beginning to look like many sales wouldn’t be able to make it to completion before the 31st March deadline.
This has now been extended, so when buying a property you don’t have to pay stamp duty on the first 500,000 of its value until the 30th June 2021.
Crucially, the holiday doesn’t stop there. The threshold will then reduce to 250, 000 until the end of October, returning to the normal threshold of 125, 000 from October 1st.
Despite people buying second homes, or purchasing property for investment being subject to the 3% second home stamp duty, not having to pay the standard stamp duty on a property represents a significant saving – so if you’ve been thinking of investing in property, start looking now rather than waiting until the last minute!
Government to underwrite high loan to value (LTV) mortgages
The number of 95% mortgages will start increasing again from next month, with a new scheme announced which sees banks given the confidence to lend such a high proportion of a property’s value, by the government guaranteeing the loan.
This is to boost the number of people who are able to get on to the property ladder, by reducing the amount of deposit needed. The chancellor named banks who have committed to offering these loans as of next month, including Lloyds, Natwest, Santander, Barclays and HSBC with Virgin Money to join in the not too distant future.
This is also great news for investors
This is also reassuring news for property investors, but to understand why, we first need to go back in time.
High LTV loans were commonplace back in the early 2000’s, but the economic crash in 2008 saw the withdrawal of such products, with banks losing confidence in property prices.
Mortgage lenders provide loans with the proviso that if it can’t be repaid, they can repossess your home and sell it to get their money back – pretty straightforward. This is great when property prices are stable and rising, because they can be confident that if they do need to sell a home to recoup their funds, it will cover the loan value.
When house prices crash, the banks might be left with properties which aren’t worth as much money as they’ve loaned on them, so they will lose money. This is what has made them reticent to offer 95% and above mortgages to help first time buyers.
So how does the budget 2021 benefit investors?
Well, by the government being willing to put their necks on the line and guarantee these products so the banks are guaranteed no losses, investors can be confident that the government will be doing everything in their power to ensure property prices remain high, because if they were to take this gamble and lose a lot of money as a result, it would be a disaster for them.
Budget 2021 key points
- Extended Stamp Duty holiday from March 31st – June 30th
- The government to underwrite high LTV mortgages to help first time buyers get on the ladder with small deposits.
- No increase in income tax
- Furlough extended until the end of September
- No additional alcohol duty, and planned fuel duty hike scrapped
- Universal Credit uplift to continue for 6 months
- No corporation tax increase until April 2023 when it will only affect the top 10% of businesses
- Business rates 100% reduction extended until June
- 5% VAT reduction extended by 6 months
Are you thinking of investing?
If you're thinking of investing in property, now is the right time to do that. Visit the buyers section of our website for more information to help you with the process.