How Budget 2021 has Affected the UK Housing Market

Amid the persistent chaos of the pandemic lasting for more than a year now, the UK government announced the annual budget for 2021. Chancellor Rishi Sunak has proposed new measures that would not only help the business to flourish through the pandemic owned economic crisis but it includes a spectrum of tax-raising plans to pull public finances from a negative balance.

Although there is no change in income tax, national insurance rates, and CGT, business sector measures are devised such to keep it minimally affected. The business will not only enjoy super deductions on capital investments but have a temporary three-year carryback on losses. Let’s have a look at the measures in favour of the housing market.

 Stamp duty holiday

The UK housing market is going to be benefitted from new budget measures, the most relieving one is the stamp duty holiday extension in the budget 2021. House purchases in England and Northern Ireland are going to enjoy stamp duty exemption announced firstly last year and now extended till 30th June 2021.

 Stamp duty is a tax paid by house buyers depending on the price of the property. It’s indeed a big sigh of relief for low-budget property dealers who don’t have thousands of pounds in the bank to throw at a property.

 Nil-rate Tax break

To support the housing market last year the nil-rate tax break was introduced and it has stimulated the market so extended till the end of September in the latest budget. The relief will remain at 0% on properties up to ￡ 500,000 between March and June. From June, the first ￡ 250,000 of the purchase price will be exempt from the tax, before the allowance returns to the pre-pandemic level of ￡ 125,000 from the start of October.

Since the discount introduction, it has cost the Treasury an estimated ￡3.8 billion in revenue, but 2% of the government’s total tax take.

Government-backed mortgage guarantee 

Owing to the corona-virus crisis’s impact on the UK economy, low-deposit mortgages have been wiped out in the last year, most mortgage lenders will offer a maximum of 90% loan-to-value, asking buyers to pay a 10% deposit.

This has made it difficult for first-time buyers to step on the property ladder, as they have to save a large amount of deposit. The latest budget has announced a 95% government-backed mortgage guarantee scheme to help first-time buyers to make their long-awaited dream of owning a house come true.

Furthermore, the new mortgage will not be solely available for first-time buyers, the 95% mortgage will be available to all buyers of properties costing up to ￡600,000, which accounts for 86% of homes currently up for sale in the UK. Hence the government is dedicated to change generations rent to become generations buy. The mortgages will be available from April 2021 -December 31, 2022.

These measures have stirred a spike in sales owing to duty discount. People who were worried about the state of the economy, it has given them a chance to move homes. As lockdown had driven prices up, the reason being more people were looking for homes with gardens, studies and larger plots, government-backed 95% mortgages announced in the Budget would help hundreds of thousands of 1st-time buyers.

According to an estimate by the end of September 46% of house sales in England will benefit from the full or partial stamp duty exemption. Moreover, the continuation of the tax break is the biggest stimulus for all secondary services involved in buying a home.

No matter that’s construction, retailing or professional services, it’s very much moved the economy.

Due to future uncertainty with the UK market prospects, there are concerns that low-deposit mortgage buyers could have negative equity. Negative equity makes it difficult to sell or remortgage a home, thus posing a risk to new buyers. Moreover, if prices were to fall, recent buyers with 95% LTV mortgage would be likely to owe more money than their house is worth. This issue could be avoided by having less to repay.

Critics might argue that such a scheme will only aid in house price inflation, but without such a scheme no developers would be interested to invest. 

However, despite the critic’s point of view, overall Budget 2021 is buyer friendly and a huge, huge step forward that will keep the housing market continue to be phenomenally active.