Budget 2021: Lower mortgage deposits introduced and stamp duty holiday will end on 30 September

In his Budget speech this week, Chancellor Rishi Sunak announced that the government will introduce a new mortgage guarantee scheme.

The scheme aims to help people who can’t afford to save a large deposit buy a home by incentivising lenders to offer 95% mortgages.

The Treasury said these sorts of mortgages had “virtually disappeared” over the past year due to the effect of the COVID-19 pandemic on the economy, preventing many prospective homebuyers from getting onto the property ladder. 

Low 5% deposits on homes up to £600,000

The new scheme means people with only a 5% deposit will potentially be able to buy a property worth up to £600,000, provided certain income requirements and other checks are met.

The Chancellor said several of the country’s largest lenders have already signed up to the scheme, including Lloyds, NatWest, Santander, Barclays and HSBC. 

These will be offering 95% mortgages from April 2021, with the Chancellor saying he expects more to follow shortly after.

A boost for first-time buyers

First-time buyers are expected to benefit from the scheme, with the government saying that saving for a sufficient deposit remains the biggest hurdle for most when it comes to buying a home.

According to property portal Rightmove, the average national asking price for a first-time buyer property is £200,692 (February 2021). On a property worth this amount, a 5% deposit would work out as £10,035.

Meanwhile, existing homeowners with low levels of equity in their property who are struggling to move or re-mortgage onto a more competitive offer could benefit too. 

The government says it hopes the new scheme will help these “frustrated homeowners” climb onto the next rung of the property ladder.

The scheme will initially be open for new mortgage applications from April 2021 to December 2022.

What mortgages are eligible for the scheme?

For a mortgage to be eligible for the scheme, it will need to: 

• be a residential mortgage (not second homes) and not buy-to-let 
• be taken out by an individual or individuals rather than an incorporated company 
• be on a property in the UK with a purchase value of £600,000 or less 
• have a loan-to-value of between 91% and 95% 
• be originated between the dates specified by the scheme 
• be a repayment mortgage and not interest-only
• meet standard requirements in terms of the assessment of the borrower’s ability to pay the mortgage, for example a loan-to-income and credit score test

Stamp duty holiday to end

The stamp duty holiday will officially end on 30 September and will return to its original rate from 1 October 2021. 

The tax break was introduced in July 2020 when England came out of its first lockdown. 

1 October will see the nil rate band return to the standard amount of £125,000, while for first time buyers, this is set at £300,000.