Hoping to buy a new home? This could be a good time to get a mortgage

Wondering if now is a good time to buy? Here’s why this could be a great time to bag a decent deal


Cash in on cheaper borrowing

If you’re busy house-hunting and hoping to purchase a property in early 2021, the good news is, we are seeing some signs of easing in the mortgage market.

While lenders made it more difficult to get a mortgage last year after the market was rocked by Covid, conditions are currently looking a bit brighter for borrowers as things start to stabilise.

Right now, we are seeing a return to a more competitive mortgage market, with some lenders cutting rates, and mortgage approvals at a high level.

But house prices are on the up

The problem is, while the cost of borrowing is nudging down, house prices are heading up.

The housing market ended 2020 in the middle of a mini boom, and one of the big contributing factors was the stamp duty holiday.

Announced by Chancellor Rishi Sunak in July last year, this temporary tax break has meant there has been no stamp duty to pay on properties costing under £500,000.

While the aim of this was to boost the housing market, it has also pushed prices up.

Borrowers face higher deposit requirements

At present, deposit requirements are posing the biggest hurdle for many of those looking to buy.

Not only do higher property prices mean higher deposit requirements, but for some time now, lenders have been reluctant to lend at a high loan-to-value (LTV).

Prior to the pandemic, you may have been able to borrow with a deposit of just 5% of the property value (at 95% LTV).

But due to Coronavirus and lockdown, many lenders tightened criteria and pulled their high LTV deals. As a result, minimum deposit rates increased – in some cases up to at least 20% (meaning borrowing at just 80% LTV).

Tough times for first time buyers

Higher deposit requirements have been making it especially hard for first timers looking to get a foot on the bottom rung of the property ladder.

While some are lucky enough to be able to turn to the ‘bank of Mum and Dad’ for financial help, many are struggling to amass the sums required.

Deals for borrowers with a deposit of just 10%

The good news is, some lenders are starting to relax their requirements a little, and offering mortgages to buyers who have a deposit of just 10%.

At present, you may be able to get a two-year fixed-rate mortgage with a 10% deposit (at 90% LTV) at a rate of between 3% and 4%.

To compare mortgage deals – either as a first timer, or as you look to move up the property ladder – head here.

Are there any other options for first time buyers?

There are a number of forms of help on offer for those struggling to buy:

  • Help to Buy Equity loan – with this scheme, you can buy with a deposit of just 5%. The Government then adds a loan of up to 20% of the value of the property you are looking to purchase (rising to 40% in London). This is only available if you’re buying a new-build property.
  • Shared Ownership – with this scheme, you purchase a part of the property (typically between 25% and 75%) from a council or housing association, and pay rent on the rest to a housing association. As you pay rent on the part you don’t own, a smaller deposit is required.
  • Lifetime ISA – with this scheme, you get a 25% bonus from the Government, worth up to £1,000 if you save a maximum of £4,000 a year towards a deposit. It is open to those aged between 18 and 39, and you can get up to £32,000 towards your first home.
  • Club together and buy with a partner or friend – this option can make house-buying more affordable. But you must tread very carefully and understand exactly what might happen if, say, your friend wants to move on.

What about the stamp duty holiday?
For the past few months, many buyers – and especially first timers – have been given a helping hand by the stamp duty holiday.

Back in July, the Chancellor axed stamp duty on properties selling for under £500,000.

Prior to this, most buyers had to pay the duty on properties costing more than £125,000.

This temporary break has saved homebuyers a huge amount of money. For example, for a first time buyer purchasing a £500,000 home, this has meant a £10,000 saving on stamp duty.

Will the stamp duty relief get extended?

While this holiday is due to end on March 31 this year, there is a growing campaign to get an extension to the tax break.

Campaigners hope this will assist those who would otherwise not be able to afford to move, and give current transactions a little longer to complete.

There is an online petition calling for the holiday to be extended by six months, and this has more than 125,000 signatures. Many different groups are making similar calls for the end date to be pushed back.

Parliament set to debate the issue

Amid mounting speculation that Sunak could be considering an extension to the holiday, the Government has now set a date for discussion of this issue – with MPs set to debate this on February 1.

We will update you with any new information as we get it, and as soon as any announcement is made.

What if there is no extension?

If no extension is announced, there are concerns about what will happen to those who fail to meet the deadline of March 31.

Anyone starting the process now is unlikely to finish in time, while even those a little further along may struggle to complete in time. This could prove hugely problematic to buyers who have factored tax savings into their budgeting.

At worst, this could mean that some property purchases are no longer affordable, leaving buyers with no option but to pull out. For homebuyers in this position, this could mean losing all the money they’ve sunk into surveys, searches, legal fees and so on – which could be pretty devastating.

What will happen?

Some are speculating that if the Government’s stamp duty holiday does come to an end on March 31, this, coupled with rising unemployment – and a ‘softening’ of the pent-up demand to move – could mean we see house prices fall.

By contrast, it is hoped that an extension to the tax break could help stabilise the housing market.

Right now, all eyes are on the Chancellor.

Find out more about stamp duty

To find out about how much you could save on stamp duty head here.

To read more about equivalent charges in Scotland and Wales here here.

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