Savills experts have broken down two key moves in Chancellor Rishi Sunak’s Budget. Andrew Perratt (pictured left), head of Savills country residential division, looks at the extension to the stamp duty holiday while Lawrence Bowles, a director in the Savills research team, looks at the new mortgage guarantee scheme.

Stamp duty holiday extension (Andrew Perratt)

The stamp duty holiday extension is the news the housing market had hoped for. It will allow record levels of under-offer stock to complete without the pressure of the March 31 deadline and bring badly needed stock to the market.

We know from our client surveys that many buyers in the prime markets made their decision to move before the stamp duty holiday was announced and we expected the majority of sales to complete whether or not they made the deadline.

We also know that the stamp duty saving had most benefited sales in the £400,000-£600,000 bracket, so this extension will likely be most keenly felt in the mainstream market.

That said, what is good news for the mainstream market is definitely good news for prime, with positive sentiment carrying between the two.

The announcement that the nil rate band will be set at £250,000 from July to September reduces the maximum £15,000 saving to £2,500, so will be a greater boost to sentiment than finances.

Mortgage guarantee scheme (Lawrence Bowles)

We estimate the mortgage guarantee will have a limited direct impact on transaction activity and pricing.

However, guaranteeing mortgages sends a powerful message to the market about Government’s support for home ownership and for the housing market as a whole.

This will help maintain strong consumer confidence and help support house prices.  It also recognises the importance of the housing market to the economy as a whole, particularly as it is not limited to first time buyers but extends support to upsizers, for example, ie young families requiring additional space.

The guarantee resembles the Help to Buy (HTB): Mortgage Guarantee scheme. This scheme supported 105,000 transactions during its life from October 2013 to June 2017, averaging 28,000 transactions per year.

This is a little over a half (53 per cent) of the 53,000 sales supported by the Help to Buy equity loan at its peak in the year to September 2019.

But borrowing at high loan-to-value ratios (LTV) is expensive so mortgage terms will be key to its success. The average quoted mortgage rate for a 95 per cent LTV mortgage was 4.07 per cent in January 2021, according to the Bank of England. Mortgages at 75 per cent LTV cost less than half that at 1.75 per cent.

Even if a Government guarantee helped bring high-LTV mortgage rates down, these loans would still be much more expensive than the 75 per cent mortgages HTB users can access. I’ve put together a table below to illustrate how monthly housing costs differ when buying with a HTB equity loan or with a 95 per cent LTV mortgage.

  HTB equity loan 95 per cent mortgage guarantee
Full property value £274,000 £274,000
Mortgage balance £205,500 £260,300
Minimum income required at 4.5 x LTV £45,667 £57,844
Mortgage rate 1.75% 3.00%
Monthly mortgage payment £846 £1,234

Raising a deposit is not the only barrier first-time buyers face. They also face limits to what they can borrow, relative to their incomes.

Mortgage lenders can only advance up to 15 per cent of their loan book to people borrowing more than 4.5 times their income.

The minimum income required for a 95 per cent LTV mortgage on the average FTB home in England, £274,000, is £57,844. This is a higher income than 75 per cent of households nationally.

This suggests take up for the FTB mortgage guarantee will be greatest where house prices are relatively low and loan-to-income ratios lower. Take up will be limited in areas where affordability is already stretched.

Take up for the Help to Buy: Mortgage Guarantee scheme was greatest in Leeds (1,404 transactions) and Birmingham (1,385). By contrast, less affordable areas such as Cambridge, Christchurch, and Camden each saw fewer than 50 transactions as loan-to-income caps prevented buyers taking advantage of the scheme.

Savills is working on a more comprehensive look at the Chancellor’s Budget. Thames Tap will be publishing its detailed account later this month.

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