It seems like there has never been a better time to remortgage or buy a house than now. Interest rates are at record lows, making borrowing cheap and mortgage repayments low. To add to the good news, Chancellor Rushi Sunak announced in his Budget an extension to the Stamp Duty Holiday, providing many thousands of savings to house buyers in tax relief. Sunak also launched a new mortgage deal for low deposit buyers, offering Government-backed mortgages from a range of high street lenders with the pledge to help “turn generation rent into generation buy.”
With new schemes available and lenders competing on rates, we take a look at the incentives available to mortgage borrowers.
Low Interest Rates
The Bank of England is keeping interest rates low in order to protect the UK’s struggling economy during the Covid pandemic and it is one of few silver linings to come out of a difficult year. Because interest rates are historically low, whether you are buying a home, releasing cash for home improvements or simply looking to secure cheaper remortgage repayments, now has never been a better time to secure a mortgage or to remortgage. Interest rates lenders are currently offering ranges between 1% and 3%, depending on circumstances.
When we talk about percentage points, it is easy to miss the significance a small drop can make to mortgage repayments. If you had a £300,000 repayment mortgage over 25 years, with an interest rate of 3%, your monthly repayment would be £1,422.63 a month and a total of £126,790 in interest paid over the lifetime of the loan. If the interest rate is reduced to 2 percent, repayments drop to £1,271.56, and a total of £81,468.90 is paid in interest over the loan term. This cost difference is why it is so important to keep a watchful eye on the interest rate you pay on your mortgage.
Moving your mortgage to secure a lower interest rate does not mean you have to move house or borrow more money. You can simply move the existing debt and take advantage of lower repayments. A mortgage adviser can help you to determine if you can save money and will be able to provide you with a quote telling you what your new monthly mortgage repayment could be.
Stamp Duty Extension
Last year, the government initiated a Stamp Duty Holiday in order to help property buyers when the country was struggling financially with Covid. The extension to the Stamp Duty Holiday tax break offers big savings to those buying a home. It means that those who buy a residential property will not have to pay tax on the first £500,000 of a property sale price: someone buying a £500,000 home will save £10,000 in tax if they complete their purchase before the 30th June 2020.
The extension of the £500,000 nil rate tax band is available for a further three months, from 31 March to the end of June 2020. It will then taper down, with the aim of providing a smooth transition back to normal Stamp Duty tax rates. After the 30th June, the nil rate band will drop to £250,000 until the end of September. It then return to the usual level of £125,000 from 1 October 2021.
If you are considering taking advantage of the Stamp Duty Holiday tax relief then we are advising our clients to act now. Mortgage lenders are extremely busy and the Covid pandemic is causing delays to the completion of property purchases. Those who do not complete their purchase by the deadline will not be eligible for the full tax relief benefit.
New Deal for Low Deposit Buyers
The lack of mortgage loan options to those with small deposits of between 5% and 10% has historically been a problem for many first time buyers. The Covid pandemic has made mortgage lenders more nervous about job security and property prices. Many have reduced or cut their 95% Loan to Value (LTV) mortgages and instead focused on clients with equity in their homes, which means those remortgaging or moving, and with higher deposits which could cushion a fall in house prices.
In this week’s Budget, the Chancellor confirmed a new scheme to provide government guaranteed mortgages to homebuyers who put forward a 5% deposit. Sunak says the policy gives people who can’t afford a big deposit the chance to buy their own home. It
is expected a surge in first tune buyers in turn will bolster activity at the bottom of the housing market ladder, keeping the market moving.
Several of the country’s largest lenders including Lloyds, NatWest, Santander, Barclays and HSBC will be offering these 95 per cent mortgages from May 2021, with more lenders expected to be announced in the coming weeks.
To find out more about low rate mortgages, the Stamp Duty Holiday extension or the new low deposit guaranteed mortgages, please get in touch. Our team of advisers at Fuladvice work with first time buyers, experienced property buyers and clients looking to buying a home or remortgaging every day and will be able to help you secure your new loan. To find out more call simply fill in your details below or 0808 501 5093 or email info@fuladvice.co.uk.