Budget 2021: Stamp duty cuts extended and 5% deposit mortgages from April

Tom Belger
·Finance and policy reporter
·4 min read
The front windows of a cottage in the village of Castle Combe, Wiltshire. PRESS ASSOCIATION Photo. Picture date: Thursday September, 24, 2015. Photo credit should read: Ben Birchall/PA Wire
A home in Castle Combe, Wiltshire, as the UK chancellor Rishi Sunak unveiled plans to extend a stamp duty hoiday in England and Northern Ireland. Photo: Ben Birchall/PA Wire

The UK chancellor Rishi Sunak has extended a stamp duty holiday in England and Northern Ireland in his 2021 Budget, as well as unveiling new mortgages with just 5% deposits.

The news sent shares in leading British housebuilders and banks soaring in London, and was welcomed across the property industry.

The threshold for stamp duty, a tax on property transactions in England and Northern Ireland, will remain at £500,000 ($698,558) until 30 June for residential purchases. It means buyers avoid the levy altogether on purchases under that amount. It will then only fall to £250,000 for another three months, before returning to its standard £125,000 rate.

A temporary holiday introduced last year had been due to expire on 31 March. The holiday on a similar land tax in Scotland and Wales is still due to expire soon, with the devolved administrations not expected to follow Sunak's lead.

READ MORE: UK increases payment limit to £100

Sunak also used his speech to flesh out prime minister Boris Johnson's pledge to help turn "generation rent into generation buy" at the Conservatives' party conference last October. The UK government will provide a mortgage guarantee to lenders on mortgages for first-time buyers if they can only offer 5% deposits.

Several major lenders including Lloyds, Barclays, NatWest, Santander and HSBC will offer them from next month, he said.

Low-deposit mortgage availability has shrunk since the pandemic hit amid rising unemployment, increased lender caution and record high property prices, which have made home-ownership a distant prospect for many. But Johnson claimed last year the government's plans would fuel the "biggest expansion of home ownership since the 1980s."

WATCH: Stamp duty cuts extended into the summer

The extension to the stamp duty deadline also comes after industry warnings the cliff-edge risked derailing large numbers of transactions. Parts of the property industry have struggled to cope with the scale of demand fuelled by the tax cuts and lifestyle changes in the wake of the pandemic, resulting in delays in transactions.

Sunak noted the "sheer volume of transactions," and acknowledged many wouldn't complete before 31 March.

"The extension to the stamp duty holiday is welcome news, especially to those currently in the purchasing process, as it will give them the time they need to complete before the deadline," said Kate Randall, managing director at estate agent Whitegates. The group had its highest ever web traffic last month, and saw average completion times soar from 12 to 20 weeks amid delays.

Sean Randall, a stamp duty specialist and partner at tax, accounting and business advisory firm Blick Rothenberg, told Yahoo Finance UK the tax cuts were primarily designed to save jobs, rather than stabilise the market or help buyers.

READ MORE: Winners and losers from the budget in UK business

"It was announced [last year] as part of a jobs package, to prevent wholesale unemployment in sectors closely linked to a healthy housing market, such as DIY and home retail, construction, estate agents. And it did," he noted.

Sunak said at the Budget the stamp duty cut had supported jobs at a "critical time." Randall said extension would continue to support jobs and activity would have dropped without it, whatever the merits of introducing the tax break in the first place given concerns over market distortion and affordability.

Developers Persimmon (PSN.L), Barratt (BDEV.L) and Taylor Wimpey (TW.L) were among the biggest risers on the FTSE 100, each up more than 5% on Wednesday.

Randall noted that while property industry leaders would welcome the news, their staff may be less happy with the continued pressure, however. "Conveyancers are absolutely exhausted and at breaking point."

Andrew Montlake, managing director of mortgage broker Coreco, said both announcements would be popular, but also warned they would likely have a "sting in the tail."

"We shouldn’t forget that both measures will keep house prices stubbornly high. More people will be able to get onto the ladder but the first rung on that ladder will be a lot higher up."