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What does summer have in store for first-time buyers?

The housing market has been on fire since the start of the year. But what do the summer months hold for first-time buyers?

Here’s a handy Q&A to put you in the picture.

Q: Has the stamp duty holiday ended now?

A: Not quite. From 1 July, home movers no longer get the first £500,000 of their property price stamp duty free. Instead, the threshold at which stamp duty is paid has been lowered to £250,000. So if you buy a house for £300,000 you only pay stamp duty on the portion between £250,001 and £300,000. On 1 October, the threshold reverts to the pre-holiday level of £125,000.

Q: I’m a first-time buyer. How much stamp duty do I have to pay?

A: Here’s some good news. First-time buyer stamp duty relief, suspended because of the stamp duty holiday, is available again from 1 July. That means you don’t pay any stamp duty on homes priced up to £300,000. And if you have to pay up to £500,000 for your first home because you live in an expensive part of the UK you pay 5% on the portion of your purchase price between £300,001 and £500,000. You can read more on that in our stamp duty explainer.

Q: I keep reading about record high house prices, will they keep rising?

A: It’s true that there’s been phenomenal house price growth in a year. According to Nationwide, since June 2020 house prices have risen by an eye watering 13.4% taking the cost of an average home to £245,432.

Will it last? Forecasts for future house price growth vary. Reallymoving, for example, says prices will rise by 3.7% in July before slowing to 0.4% in August, as the pace of homebuying settles down.

Here’s what the experts think. “Underlying demand [for housing] is likely to remain solid in the near term as the economy unlocks,” says Robert Gardner, Nationwide's chief economist.

“Consumer confidence has rebounded while [mortgage] borrowing costs remain low. This, combined with a lack of [housing] supply on the market, suggests further upward pressure on prices. But as we look toward the end of the year, the outlook is harder to foresee.”

Q. Should I wait for a house price crash?

A: Opinions vary on when and by how much house price growth will slow or shift into reverse next year. But so far no-one is predicting prices will collapse while the cost of mortgages is low, homes for sale are in short supply, and demand from homeowners who want to upsize remains high.

The Office of Budget Responsibility predicts price growth will slow throughout 2021 before declining slightly in 2022 and beginning to climb again gradually in 2023.

Q: If there’s no house price crash on the horizon, how am I supposed to afford a deposit?

A: There’s no question that house price affordability is real problem for first-time buyers. Robert Gardner says: “A 10% deposit is over 50% of a typical first-time buyer’s income. A potential buyer earning the average wage and saving 15% of take-home pay would now take five years to raise a 10% deposit.”

There are government schemes to help you save for your first deposit, like the Lifetime Isa and the Help to Buy Isa, although this is now closed to new applicants. You’ll be rewarded with a generous bonus if you save regularly.

Banks are also now lending up to 95% again thanks to the government’s mortgage guarantee scheme, helping borrowers with a 5% deposit. Typical rates are between 3.5% and 4.5%.

The latest initiative to launch is called First Homes. This entitles first-time buyers to a 30% discount off the purchase price of selected new-build homes. A host of building societies came out in support of the scheme which is expected to take off this summer.

Another option is our Deposit Boost; a way that a willing family member can top up your deposit or create one from scratch by unlocking money from an existing property. Not sure how to broach it? Check out our guide on talking to your family about money here.

Q: Beyond government schemes, is there any more help for first-time buyers?

A: Yes. You’ll be relieved to know that according to Moneyfacts, a financial data firm, there are now 22 mortgage deals on the market that allow your parents to join you on the mortgage without being owners of the property. It’s called joint borrower, sole proprietor (JBSP) but at Tembo, we call it an Income Boost. By joining you on the application their earnings can boost the amount you can borrow. Our advisors are on hand to tell you more about applying for a JBSP, so do complete a plan and get in touch.

Also, interest rates are also at an all-time low. Since the start of June, TSB, HSBC and Cumberland Building Society have all launched mortgage rates of less than 1%. There’s now 20 such deals to choose from. To get your hands on one of these ultra-cheap deals you’ll need a 40% deposit.

Q: Are interest rates going to rise in the next few months?

A: No, the Bank of England’s Base Rate (BBR) is not expected to rise above its historically low point of 0.10% in the next few months. The BBR influences how lenders price their mortgages. If the BBR rises, lenders tend to follow suit.

Independent research body Capital Economics does not expect rates to rise for the next three years if the recent rise in inflation, caused by the nation splashing the cash when lockdown ended, is temporary.

Andrew Wishart, property economist, says: “…with our forecast that Bank rate will remain at 0.10% until 2025, we suspect mortgage rates will drop a little further in the near term and stay low even if gilt yields continue to rise. 

“Even so, we suspect the housing market will cool when the stamp duty holiday ends. But the cushion of very-low mortgage rates should prevent a fall in prices.”

There you have it, folks. A whistle-stop tour of what the next month might hold for first-time buyers.

If you want to talk to an expert about your situation, our team of brokers are ready and waiting for you. Complete a plan to start the conversation - no obligations, no credit check, just a personalised plan to show you how you could get on the ladder.

Words by Samantha Partington


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