In this year’s Budget, the Chancellor announced a wide range of tax and spending changes with many designed to support the UK economy through the pandemic and beyond.
Here are the three key changes in the Budget that home-buyers need to know.
New 95% mortgage guarantee scheme 🏦
The government’s new 95% mortgage guarantee scheme, designed to help buyers with 5% deposits, has now launched.
Amidst the uncertainty of the pandemic, lenders withdrew almost all 95% mortgage deals from the market. In this year’s Budget, the government announced they would incentivise lenders to bring back 95% mortgages by guaranteeing some of the financial risk, for example, by covering the cost of borrowers defaulting on their mortgage repayments.
A growing number of high street lenders including Barclays, Halifax, Lloyds Bank, Santander, HSBC and NatWest have already launched 95% mortgage deals, with more expected to follow. This is good news for many hopeful homeowners!
The scheme isn’t restricted to first-time buyers or new-build properties, but the property must be worth £600,000 or less. It’s only available on repayment mortgages (not interest-only) and residential mortgages (not buy-to-let or second homes).
It’s worth noting that with a repayment mortgage, the lower your deposit, the more interest you’re likely to pay. With a lower deposit, you’re also at greater risk of falling into negative equity (where you owe more on your mortgage than your house is worth) due to changing property valuations. It’s always best to try and save as much of a deposit as possible to lower the risk and help you access the most competitive mortgage deals.
What this means for you
If you have a 5% deposit and are looking to buy a property under £600,000, you may be eligible for the new mortgage guarantee scheme. You can read the full details on the government’s website.
If you’re saving for your first home with a Lifetime ISA, you could use your savings and LISA government bonuses to make up the 5% deposit required to take advantage of the new scheme.
Stamp duty holiday extended to 30th June! 🏝️
Another key announcement was the extension of the stamp duty holiday until 30th June 2021. Until this date, the nil-rate threshold for stamp duty will remain at £500,000. The stamp duty holiday was initially introduced last year to boost the housing market during the pandemic. This is a big win for both the housing market and home-buyers, as it will allow more time for people to take up the offer and save money.
From 1st July 2021 to 30th September 2021, the stamp duty threshold will drop to £250,000. From 1st October 2021, the stamp duty threshold will revert back to the usual limit of £125,000.
What this means for you
If you’re buying a property valued at less than £500,000 and complete your home purchase before 30th June 2021, you won’t pay any stamp duty. If you’re buying a home worth more than £500,000, you won’t pay any stamp duty on the first £500,000 of the property value.
The stamp duty holiday extension applies to buyers in England and Northern Ireland. If you’re buying in Scotland or Wales, there are equivalent taxes with different rates. Read the full details and see the latest rates for Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales.
While the stamp duty decision doesn’t have a direct impact on Lifetime ISA savers, it does mean that they could now benefit from a double tax-free savings opportunity! Under the usual stamp duty rules, first-time buyers pay no stamp duty on properties up to £300,000 and 5% stamp duty on the value up to £500,000. The maximum property price you can purchase with a Lifetime ISA is £450,000.
The Lifetime ISA is designed to encourage people to save for their first home (or retirement) and offers a 25% government bonus on top of the tax-free savings. This means that for every £4 you pay in you get £1 for free. You can save up to £4,000 per tax year into your Lifetime ISA, giving you a potential bonus of £1,000 each year you save! Your Lifetime ISA must be open for at least one year (from the date of your first deposit) before you withdraw the money to buy your first home.
This means first-time buyers saving with a Lifetime ISA, and looking to purchase property at the top end of the Lifetime ISA cap (£450,000), could save up to £7,500 in stamp duty thanks to the extension – on top of government bonuses!
Lifetime ISA withdrawal penalty will revert from 20% to 25% from 6 April 🏡
The government Lifetime ISA withdrawal penalty will revert back to 25% from 6 April 2021. It was temporarily reduced to 20% in May 2020 to support people who needed early access to their savings during the coronavirus pandemic.
As the largest Lifetime ISA provider, we have been calling for the government to make changes to the withdrawal penalty for some time and are disappointed to not see this change be made permanent.
As our co-founder, Ben Stanway, puts it: “We think a permanent reduction is what’s needed to allow the Lifetime ISA to fulfil its potential and become the default savings product for young people. This tax year alone, we’ve already paid out £95 million in bonuses to Lifetime ISA customers, showing the massive potential the LISA has to help young savers on their way to home ownership or a more comfortable retirement. The economic repercussions of the pandemic are likely to be far-reaching, so we need to be doing everything we can to support young people. Reducing the withdrawal penalty would be a step in the right direction to give millions of young savers the boost they need to save for their future. While we appreciate the importance of encouraging long-term saving, our strong view is that the loss of a 25 per cent bonus is sufficient incentive for people to avoid dipping into their savings unless they need to. There is no need for any further disincentive.”
What this means for Lifetime ISA holders
The standard 25% government withdrawal penalty means that from 6 April 2021, if you withdraw money for any reason other than buying your first home or for retirement, you will have to pay a 25% government penalty on the amount you withdraw. This means you’ll get back less than you’ve put in. Please note, this excludes investment gains/losses for a Stocks & Shares Lifetime ISA.
The last date you are able to request a withdrawal from your Moneybox Cash Lifetime ISA at the 20% penalty is midday 31st March 2021. For a Stocks & Shares Lifetime ISA, this date is midday 25th March 2021. This allows for your withdrawal to be fully processed by the date the penalty changes.
Petition to reduce Lifetime ISA withdrawal penalty
We believe the reduction to 20% should be permanent, so we’ve signed this petition – and we’re asking you to join us by signing it too. If the petition reaches 100,000 signatures, it will be considered for debate in Parliament.