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Are 95 percent Mortgages and the Stamp Duty holiday extension beneficial to buyers

Posted on March 17, 2021 at 10:19 AM

Chancellor Rishi Sunak’s budget revealed key changes to the property market, most notably the current stamp duty holiday being extended for a further three months and the government pledging to work with lenders to increase the availability of 95% mortgages.

Buyers and sellers who have been desperately trying to get their sale completed in time to meet the previous deadline of 31st March can breathe a sigh of relief, but the June 31st deadline will likely leave new buyers in a similar race against the clock this summer.

Buyers in London stand to benefit most from the stamp duty savings, with average property prices standing at £644,631 in March 2021, so the maximum stamp duty saving (£15k) can be utilised.

The government’s pledge to work with lenders to reinstate 5% deposit mortgage deals should give the property market even more of a boost and help many that struggled to save for a deposit get on the property ladder.

Will these incentives save buyers money in the long term?

The stamp duty holiday extension has once again boosted demand from buyers, with seemingly no substantial increase in the supply of new properties coming to market to meet this demand. Reports from Rightmove state they had their busiest day ever after the announcement, with the March House Price Index showing buyer enquiries up 34% over the same period last year. This increased competition can lead to price increases which may eclipse any potential savings from the stamp duty holiday, especially if the property value is below the £500,000 threshold.

The re-introduction of 95% loan-to-value mortgages will no doubt increase the pool of buyers looking to purchase properties, but what implications would a mortgage with such a low deposit have? Historically, interest rates have been more favourable for those utilising a larger deposit, so, it stands to reason that interest rates (and therefore monthly repayments) for these mortgage products will be higher than if using a larger deposit.

Over the course of the mortgage term, the amount of additional interest paid to the lender could be so significant that buyers may want to reconsider if putting down a slightly larger deposit is possible, potentially saving them thousands in the long run. Further, any extra deposit put down becomes equity in the property, whereas higher interest paid to the lender is lost entirely.

Who is benefiting the most?

In short, those who are selling their property will get most of the benefit due to increased competition from buyers, likely meaning higher sale prices. There are savings and opportunities for purchasers (especially those that can pass affordability checks from lenders but have simply struggled to save for a deposit in the case of 95% mortgages), however buyers should research the true market value of properties by looking at recently sold comparables in the local area, giving them a better idea if they are potentially overpaying because of increased demand and shortage of new properties coming to market.

If you’re curious about the current market value of your property, don’t hesitate to get in touch on – 0208 951 1888 – we’d be delighted to help with a no-obligation market appraisal.


Are 95 percent Mortgages and the Stamp Duty holiday extension beneficial to buyers