Chancellor Rishi Sunak delivered hope to millions of house buyers today as he announced a stamp duty holiday extension alongside new 95% mortgages for buyers.
The new mortgage guarantee scheme, first confirmed last week, will help raise home ownership numbers from April, the Chancellor said.
Sunak confirmed the news in the Commons earlier amid a record low in 95% mortgages. Right now, there are just eight products on the market, with banks pulling the 'risky' loans since the start of the pandemic.
But there are already fears that the new scheme - designed primarily to help first-time buyers get onto the ladder - will lead to a surge in demand and rising house prices, putting properties further out of reach for many.
"This is a policy that gives people who can't afford a big deposit the chance to buy their own home," Sunak told MPs.
"As the prime minister has said, we want to turn generation rent into generation buy.
"Lenders who provide mortgages to homebuyers who can only afford a 5% deposit will benefit from a government guarantee on those mortgages.
"I'm pleased to say that several of the country's largest lenders including Lloyds, NatWest, Santander, Barclays and HSBC will be offering these 95% mortgages from next month, and I know more, including Virgin Money, will follow shortly after."
In a double whammy for the housing market, Mr Sunak also said the stamp duty holiday will run for a further three months until the end of June.
All purchases up to £500,000 will continue to be tax-free, with a further extension on homes bought up to a value of £250,000 until the end of September.
While the break is forecast to cost the tax-payer £1billion, the move will help push through around 160,000 home sales stuck in limbo and at risk of falling through if the holiday was not extended.
"I can announce today the £500,000 nil rate band will not end on 31 March, it will end on 30 June," Sunak said.
"Then, to smooth the transition back to normal, the nil rate band will be £250,000, double its standard level, until the end of September – and we will only return to the usual level of £125,000 from 1 October," he added.
The extension between June and September will have no impact on first-time buyers, with the standard threshold pre-Covid already at £300,000 for them.
Within 30 minutes of the announcement, property website Rightmove said use of its mortgage calculator had jumped by 85% and overall traffic by 16%.
Around 45% of all properties will be exempt from stamp duty from July to September, it said.
The average stamp duty saving in England is £5,802.
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Rightmove's property expert Tim Bannister said: "The three-month extension will come as a huge relief for those people who have been going through the sales process since last year and were always expecting to make use of the stamp duty savings.
"Buyers who have recently agreed a sale now have a race on their hands to see if they can also make use of the stamp duty savings, but many with purchases over £250,000 will find that time is too tight to complete before the end of June and so shouldn't be factoring this into their purchase.
"We've heard from so many first-time buyers over the past year of their challenges to raise a 15% or 20% deposit, with a number saying they had to put their plans on hold, so the availability of 5% deposits will really help this all-important market sector.
"It could help some buyers bring their plans forward, especially if they managed to save more than they were expecting to while in the various lockdowns.”
The start of another crisis?
However, there are some concerns about how the new 95% mortgages scheme will be delivered.
The initiative is a rework of the Help to Buy mortgage guarantee scheme that ran from October 2013 to December 2016.
That scheme backed mortgages for 104,736 purchases - 2.7% of all those in the UK.
Through the scheme, the government is effectively your guarantor. This means it will foot the bill if you lose your job or can no longer repay the mortgage.
The scheme will begin in April. The government hasn't yet confirmed how long it’ll last.
But experts fear the move will push up house prices, because it raises demand for homes but doesn't put more supply of homes into the system.
This would mean that, while it’ll be easier to get a mortgage with a low deposit in the short term, the cost of a home will slip even further out of people’s reach in the long term.
Market analyst Neal Hudson said: "This makes an 8% increase much more likely than an 8% fall."
Other red flags include the fact that the scheme is open to all buyers.
That means it will benefit people moving up the ladder rather than just those joining it - effectively creating more competition for those who need it most.
The Chancellor said the scheme will offer 95% mortgages on homes worth up to £600,000 - with a deposit of just £30,000.
But that doesn't mean if you save £30,000, you'll be able to buy a £600,000 home straight off the bat.
Most mortgage lenders will only give you a loan worth four to five times your annual household income because of affordability rules. So to get a mortgage of £570,000, you'd need to be earning around £130,000.
This means the biggest winners of the 5% scheme would be the higher earners - instead of the people really struggling to buy a home.
Nigel Purves, CEO of Wayhome, said: "The headline-grabbing 95% mortgage policy is politically astute, but it is a band-aid on a bullet wound.
"The affordability issue for renters goes much deeper than the deposit. Mortgage lenders calculate their lending by multiplying household income – and with the average house price in England coming in at just under £270,000, it means that you’ll need quite a hefty household income to get a 95% mortgage to afford to buy it.
"If the government is truly committed to turning Generation Rent into Generation Buy, it must work together with the property industry to raise awareness of innovative ways to help people take their first step onto the homeownership ladder."
The reason banks aren’t offering 95% mortgages right now is because of volatility in the market.
If you borrowed 95% of what you paid for a house, then prices fall 20% you could end up owing more than what you borrowed – pushing you into negative equity.
The guarantee scheme solves that problem for the banks. But it doesn’t stop the risk for the buyer. It means you could end up trapped in debt.
What other changes are coming?
Sunak also today confirmed the extension of the furlough scheme until the end of September, although employers will be expected to make a contribution from July.
The 5% VAT cut has also been extended for the tourism and hospitality sector to the end of September, with an interim rate of 12.5% for another six months after that.
Meanwhile, business rates holidays for the retail, hospitality and leisure sectors will roll over until the end of June, with a two-thirds discount for the remaining nine months of the year.
The Chancellor also unveiled forecasts suggesting the economy will return to its pre-Covid level by the middle of next year – six months earlier than they previously thought.
But he told MPs that, despite the £280bn of support already committed to protecting the economy, the damage done by the virus has been "acute".
"Our economy has shrunk by 10% – the largest fall in over 300 years. Our borrowing is the highest it has been outside of wartime."
"It's going to take this country – and the whole world – a long time to recover from this extraordinary economic situation. But we will recover."
