1. Mortgage guarantee (95% mortgages)
What is it
The mortgage guarantee scheme is designed to increase the appetite of mortgage lenders for high loan-to-value lending to creditworthy customers. It will provide lenders with the option to purchase a government guarantee that compensates them for a portion of their losses in the event of repossession.
How does the scheme work
The government will provide lenders with the option to purchase a guarantee on the top- slice of the mortgage. In other words, the government will compensate lenders for a portion of the net losses suffered in the event of repossession.
The guarantee will apply down to 80% of the purchase value of the property and will be valid for 7 years.
Lenders will also take a 5% share of net losses above this 80% threshold. This will help to ensure that lenders are not incentivised to originate poor quality loans.
How long is the scheme around for?
The scheme is intended as a temporary measure. It will be open for new mortgage applications from April 2021 to December 2022,
What is the eligibility criteria?
To qualify for the 95% Mortgage guarantee scheme, the mortgage must:
- Be a residential mortgage (not 2nd home or buy-to-let)
- Be taken out by an individual(s) rather than a company
- Be on a property worth £600,000 or less
- Have a LTV 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
NB. The Chancellor says that major lenders such as Barclays, HSBC, Lloyds Bank, NatWest and Santander will be offering deals from April, with others including Virgin Money to follow shortly after.
Does the scheme benefit investors?
If you’re an investor looking to sell, it may benefit you as prices are likely going to be pushed up as a result of the 95% mortgages. However, the scheme is not open to those purchasing a 2nd home or buy to let property.
Does the scheme benefit first time buyers?
Yes, you will be able to put down a 5% deposit rather than 10% which most lenders currently require. This should hopefully allow buyers to get on the ladder at an earlier stage. It will also be a requirement that participating lenders must offer a 5 year fixed rate product as part of their range of mortgages offered under the guarantee. This gives buyers security of predictable repayments for a longer period.
What are the downsides?
Affordability will still be an issue for most first time buyers. Whilst putting down a smaller deposit is helpful, those that don’t earn a big enough salary will be in the same position. The only hope is that lenders may increase their income multipliers as a result of the guarantee from the government. Watch this space!
2. Stamp Duty
What has changed
Stamp duty land tax has been suspended on the first £500,000 of all sales in England and Northern Ireland since July 2020 due to Covid
(NB. Investors have still needed to pay a 3% surcharge on purchases up to £500,000)
The stamp duty break will now continue until the end of June.
After that the nil rate band will be set at £250,000 – double its standard level – until the end of September.
How does this impact investors and first time buyers
First time buyers pay no stamp duty on properties worth up to £300,000, therefore, the doubling of the nil rate to £250,000 from June to September has no impact.
From the end of June to September, investors will pay 3% stamp duty on purchases up to £250,000 and then 8% for purchases between £250,001 and £925,000.
3. Corporation tax
What has changed
- Corporation tax paid on company profits will increase to 25% in April 2023
- Businesses with £50,000 profits or less will be taxed at the current rate of 19%
- Only businesses with profits of £250,000 or more will be taxed at 25% rate
- The rate will be tapered up for businesses as they get closer to the £250,000 profit level.
How does this impact property?
If you’re buying or have bought a property in a limited company, you will potentially pay more tax on your rental profits if your profit is over £50,000.
NB. Currently, corporation tax is 19%.
*This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.