Today marked one of the most highly anticipated Budgets for many a year, in which Chancellor Rishi Sunak announced a number of measures to support the economy through the coronavirus crisis.
As expected, the spotlight was on the property sector, with Sunak announcing the extension to the stamp duty holiday from March 31 to June 30, and a mortgage guarantee scheme to encourage more lenders to offer 95% mortgages.
And while the much-anticipated increase to Capital Gains Tax (CGT) didn’t come to pass, the proposed ‘tax day’ on March 23 could see the government set out how property taxes will be reformed to close the coronavirus spending deficit.
Here at Living in London, we take a closer look at what Sunak announced today and the impact it will have on the property industry.
Stamp duty holiday extended until June and beyond for buyers
The Chancellor had faced considerable pressure on all fronts to extend the stamp duty holiday past March 31 to avoid a possible cliff-edge scenario.
The pressure exerted in recent months – bolstered by a petition which received more than 150,000 signatures and a parliamentary debate in which politicians called for an extension – has seen Sunak outline that the stamp duty holiday will be extended from March 31 to June 30, and then the nil rate threshold will be temporarily increased to £250,000 until the end of September, in an attempt to somewhat help ‘to smooth the transition back to normal’.
It’s uncertain whether these dates will prevent another cliff-edge further down the line, as a wave of buyers/sellers scurry to get a property sale/purchase agreed in the coming weeks and month, with the hope of being able to complete the conveyancing process before the new deadline, as do those who have only recently agreed a sale/purchase.
However, we do know that it will not be until October 1 that the pre-Covid stamp duty thresholds and levels will resume with a nil threshold of £125,000.
In his announcement, Sunak said: “The cut in stamp duty I announced last summer has helped hundreds of thousands of people buy a home and supported the economy at a critical time. But due to the sheer volume of transactions we're seeing, many new purchases won't complete in time for the end of March.”
The new dates mean that buyers of homes worth up to £500,000 now have until June 30 to benefit from the full stamp duty savings, which will be a sigh of relief for many.
Despite the potential dreaded cliff-edge at the end of June, the temporary extra extension at a lower threshold until October 1 will still offer a saving, but much less so for those buying close to (or above) the current £500,000 threshold, as will be the case for many buying in the SE16 and surrounding area.
Now that the announcement has been made and the details of the extension set out, buyers and sellers have more clarity, allowing them to plan a move accordingly (or not). We believe this will have a positive impact on activity levels, as it is often the uncertainty which leaves people ‘in limbo’,….. resulting in people holding off.
We expect to see a boost to buyer demand/activity, which has been at record levels since May 2020, but tapered off in recent weeks/month. This drop off was likely due to (amongst other things such as the ongoing lockdown restrictions and waiting to hear if their ‘post lockdown’ working circumstances need them to be located close to the office or not) buyers resigning themselves to the fact they hadn’t agreed a sale in time for it to complete prior to the March 31st stamp duty holiday deadline and/or waiting on the widely expected extension announcement.
Mortgage guarantee scheme and 95% mortgages
Alongside the extension to the stamp duty holiday, the Treasury is aiming to help future property buyers with the launch of a mortgage guarantee scheme.
The scheme, plans for which were announced by Boris Johnson last October, will see the government provide lenders with incentives to offer 95% mortgages.
The new scheme is not restricted to first-time buyers or new-build properties and will apply to purchases up to £600,000, which accounts for 86% of all homes currently up for sale in the UK, according to Rightmove.
Property buyers will be able to purchase a home under the new scheme with a deposit of just 5%, significantly lower than the %’s many lenders currently require.
While there is an obvious benefit for buyers, who can enter the property market without having to save as much money in way of a deposit, sellers will also be able to enjoy the increased demand from purchasers, meaning the chances of selling quickly and for the best possible price are heightened.
Early indications outline that the scheme will be available from April 2021 and run until December 2022, however, as with the stamp duty holiday, this could easily change.
Big names such as Lloyds, Natwest, Santander, Barclays and HSBC are all expected to offer 5% deposit products.
As with all such schemes, we are intrigued to see the full details and how the ‘initially proposed’ actually turns into reality for the everyday buyer, as well as…. what mortgage products will be available, who will qualify for them, what criteria is needed and importantly, what rates and fees they are offered at.
Although the initial chunk of money (deposit) is less…..great?!?!, this generally means that the rates at which the products are offered will be less competitive, and if you can afford to put in a higher deposit, options and rates will increase/ improve.
When deposits are lower, monthly payments increase, so it is definitely advisable to plan your monthly spend/saving in relation to the % you borrow.
What else was mentioned?
No announcement was made on Capital Gains Tax, a one-off wealth tax, or the 2% stamp duty surcharge for overseas buyers, which is being implemented from April. However, it is likely that more information will be announced at a later date.
Outside of property, the Coronavirus Job Retention Scheme, otherwise known as the furlough scheme, has been extended until the end of September, with higher employer contributions from July.
Business rates relief for retail, hospitality and leisure sectors will also continue from April until June.
Regarding the economy, Sunak said it should return to pre-Covid levels more quickly than previously thought, by mid-2022. But by 2026 the economy will be 3% smaller than it would have been without Covid.
The government says it has already provided £280 billion of support since the start of the pandemic. Despite this, 700,000 jobs have been lost and the economy has shrunk by 10%.
And while GDP is expected to grow by 4% this year, Sunak remarked: “It’s going to take this country, and the whole world, a long time to recover from this extraordinary situation.”
Although a longer extension would have been more popular with many buyers, the result of the extension was better than it could have been, and as mentioned, now that there is a little more certainty (at a time when things are anything but certain), we expect those who have decided they need and want more from their home to continue with their moving plans. Indeed we have already seen this, with the level of enquiries increasing since the expected announcement as well as new sellers listing their properties, we will continue to keep you updated on how things develop over the coming weeks.
Living in London are an independent multi award-winning, 5 star rated (feefo) estate agent with offices in Canada Water and Marine Wharf SE16.
If you’d like any info on what the Budget may mean for you, or any aspects of selling a home in South East London, please do call or email us to arrange a no obligation chat; firstname.lastname@example.org or 0207 231 0002.