Maybe it’s because we have been through so much uncertainty. Perhaps it’s hedging bets. Possibly it’s just because the recent buoyant house market was too good to believe. Whatever the reason, if you listen to some opinions, the end of the stamp duty holiday seems to be the housing apocalypse. The doomsayers seem to be out in force predicting everything from a slump in house prices to market crashes. So, what will it mean, and does it threaten the property space?
For context then let’s just recap a little. The Chancellor put in place a stamp duty holiday during the worst of the pandemic with the intention of stimulating the market – and it did what it was intended to do, perhaps even more than expected as the housing market went into a mini boom. We saw increased prices and a frantic flurry of activity as people took advantage of the savings it offered. Now it is coming to an end and as of September this year things will go (almost) back the way they were. As a result, there is some concern that the market will suffer the yin to the stamp duty holiday boom yang and slump.
Well, let’s get a little perspective, shall we? The housing market may well be subject to the occasional decline and rise but this is all part of the way it works. So, yes, we may see things slow down a little. However, there are still three key factors in play that could go a long way towards balancing things out and keeping the market active for the foreseeable future. Let us have a look at these:
1. 5% DEPOSIT MORTGAGES
To start with, the 5% deposit scheme is still in place which means that anyone looking to move to a home with a price tag of less that £600,000 will be able to take advantage of a much lower initial outlay. The scheme is scheduled to run until December 2022 so not only is it a great opportunity to buy, but it is also likely to keep the market active.
With the 5% scheme in place, first time buyers, home movers and previous homeowners have a lot more choice when it comes to buying a home as their 5% deposit goes much further (subject to affordability) compared to the usual 10% deposit. For example, in theory, a £15,000 deposit at 5% can buy a home in the £300,000 region; the same deposit at 10% will mean a £150,000 home. This is just a hypothetical example, there are other costs involved in buying a more expensive property and mortgage affordability is key, especially as a 95% LTV mortgage will generally come at a higher interest rate. Still, a 5% deposit for many people could mean a bigger home – motivating people to move home.
A smaller deposit requirement also means it is easier and quicker to save the deposit, some may even have just enough saved, which previously at 10% was only half of what was needed. Those looking to move home may realise that they have enough equity to afford a 5% deposit for a more expensive home. This means more buyers are now able to seriously consider a mortgage and take the step to get on or move up the property ladder.
Let us also remember that stamp duty does not apply to first-time buyers purchasing a home under £300,000 and a reduced rate applies if purchasing between £300,000 and £500,000. So, for many buyers looking for a first home, the stamp duty holiday had little or no impact, and removing it does not really matter to them – this, combined with the 5% deposit scheme is likely to attract many first-time buyers, and as we know, generally, an active first-time buyer market creates movement upwards.
2. CHANGING LIFESTYLES
Another factor in the equation is the changing needs of the buyers. Since the pandemic, working from home has gone from a perk to standard practice for a lot of workers. As things go back to normal, we see many organisations adapting a fully or partly remote working model, where going into the office every day is no longer required. This means many office workers no longer need to be city based. Rural locations, garden space, outbuildings, spare rooms for office use and proximity to outdoor exercise have therefore suddenly moved higher up the list of desirable features.
Based on all these changes, in the coming years we are likely to see new buyers and home movers who would not have considered moving had it not been for the changes caused by the pandemic. People who were happy with their 2-bed apartment in pre-covid times may be considering buying a 3-bed home with a garden now. Many living in London, to be within commutable distance to their workplace may consider moving outside of the M25 now if their job has become fully or partly remote.
3. LOW INTEREST RATES AND PLENTY OF OPTIONS
With the current base rate at 0.1% it is a great time for borrowers – for the first time in four years we are seeing mortgage deals below 1%. The best deals are as always, targeted at buyers with large deposits, or at homeowners with considerable equity when remortgaging. However, there are now hundreds of incredibly good deals available from a variety of lenders for different segments of the market, including nearly 200 deals for buyers with a 5% deposit via the government scheme.
There has been talk about some lenders being strict and more selective, which may have been somewhat true during the peak of the pandemic. However, as things get back to normal, lending criteria are also getting back to normal. Of course, the standard rules around eligibility and affordability always apply.
Give us a call to explore the best options for you. There are mortgages available and there are options for everyone, so let’s look at what works for you.