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What does the 2021 Budget mean for House Purchases and Sales?

With Rishi Sunak’s 2021 UK Government Budget, the high points didn’t come as much of a surprise. Many of the key line items were hinted at in advance. As expected, the furlough scheme is being extended until the end of September. Covid relief in the form of extensions, loans, grants and waivers have all continued for UK businesses. And the boost to universal credit was retained. But for prospective homebuyers and sellers, was there any good news? Absolutely. There were some key benefits outlined that will have house-hunters delighted. What does the 2021 budget mean for house purchases and sales? A boon, hopefully. According to the Telegraph, “In the half an hour since the policy was announced, traffic to property website Rightmove jumped 16pc.”

According to The Guardian, the key points are

“Sunak announces the stamp duty holiday will be extended. As expected, stamp duty holiday on properties up to £500,000 continues until the end of June. It will be kept at double its standard level until the end of September, and then return to usual levels from 1 October.

The chancellor confirms a mortgage guarantee to help first-time buyers access 95% mortgages.”

But what do all these things mean in layman’s terms? We’ll break down both the stamp duty holiday and mortgage guarantee in detail.

Stamp duty holiday

Stamp duty is a tax levied on house sales above a certain value across the UK. You can find the rates here. Prior to July 8th, 2020; you would pay a percentage on any property valued above £125k. But due to the pandemic, currently, you pay no stamp duty up to £500k value if you can close before June 30th, 2021. That’s up to a £15k tax savings if you move quickly. On July 1st, 2021 that drops down to £250k value exemption. And after October 1st, 2021 everything returns to normal rates. You also may need to pay an additional 3% if this is your second home. But thankfully, buy-to-let investors can still take advantage of the stamp duty holiday.

What does this mean for you? Well, if you’re in the market for a home or investment property that’s valued under £500k then you’ll be saving thousands in tax. All you need do is ensure a closing date before June 30th, 2021. If that’s not possible, there are still savings to be had up until October 1st, 2021. In fact, it’s estimated 80% of house sales will benefit from this stamp duty holiday and pay no tax at all. Curious how much you could save? Simply use our quick conveyancing quote system to see how much your conveyancing costs could be. Don’t forget, Sunak also announced mortgage guarantees for those struggling to save a large deposit. If that’s you, there’s more you should know.

95% mortgages

For prospective home buyers, COVID has not been kind. Due to a depressed economy, lenders are more risk-averse than ever. In fact, it’s basically unheard-of to see a 95% mortgage on offer these days. And the ones that are offered are usually restricted to specific postcodes or time periods. That; coupled with the challenges of saving a large deposit, has the government concerned. So in the 2021 budget, Sunak announced an olive branch for prospective new homeowners - a mortgage guarantee scheme.

According to the Evening Standard, the scheme is:

“Available to all buyers of properties costing up to £600,000. According to a study by Rightmove, this accounts for 86 per cent of all homes currently up for sale in the UK.

All buyers will also be able to fix their initial mortgage rate for at least five years.

Unlike the Help To Buy scheme, the scheme will not be linked exclusively to first-time buyers, or restricted to new build properties only.”

While its goal is to help ‘generation rent’ become ‘generation buy’ the lack of restrictions mean that it will help most buyers across the UK. Just a quick glance at the house price index shows how the vast majority of properties would be covered. And that locked-in rate will allow new homeowners to bed into their property without any sudden price rises. A large list of high-street lenders will begin offering these new government-backed mortgages from April and they are expected to remain available until December 31st, 2022. However, the Help to Buy scheme was also recently extended, so there are currently several viable government-supported avenues for first-time buyers. If you’d like the full list, it’s here.

But this news doesn’t alleviate the affordability checks that keep many buyers (namely in London) from being priced out of the market. This calculator really drives the point home. With no change to affordability checks, middle-income couples don’t have the £70k-£100k combined income it takes to buy in London. And with the job market looking unstable for the next few years, it’s uncertain how many lenders will take up the call. Even with a 95% mortgage guarantee where a missed payment is covered by the government, there would still be penalties to lenders and borrowers.

Overall take

The 2021 budget is full of beneficial packages for businesses and individuals. The two schemes announced to help the property market are likely to benefit a large swathe of the homebuying population. While we’d always urge caution in taking on any large purchase, the 95% mortgage guarantee and stamp duty holiday will make homes a viable prospect for many. Also; crucially, these new policies don’t prevent investors or repeat buyers from taking advantage. This opens it up for a section of the market that’s often underserved. The only constraints are the tight timeframes. Buyers will need to move quickly to avail themselves of both programmes. Ideally, closing a property purchase of under £500k before June 30th, 2021 for maximum savings.

As always, if you are beginning your conveyancing journey, we’d love to help. Get a quote from several leading conveyancing firms in just minutes with our handy tool. It’s fast, free and easy.

Stamp Duty for First Time Buyers

If you are a first time buyer buying a property for less than £300,000 you shouldn't pay any stamp duty.
First time buyers purchasing properties between £300,000 to £500,000 will also see a reduction in the amount of SDLT they pay, paying SDLT at 5% on the amount of the purchase price in excess of £300,000.


CURRENT STAMP DUTY RATES FOR FIRST TIME BUYER


Property or lease premium or transfer value 
SDLT rate
Up to £300,000  Zero
The next £625,000 (the portion from £300,001 to £925,000)  5%
The next £575,000 (the portion from £925,001 to £1.5 million)  10%
The remaining amount (the portion above £1.5 million)  12%

EXAMPLE

If you buy a property for £350,000, the SDLT you owe is calculated as follows:
0% on the first £300,000 = £0
5% on the final £50,000 = £2,500
Total SDLT = £2,500


You can read the full Government paper on SDLT relief for first time buyers on the Gov.UK website.

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