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UK Government To Announce 95% Mortgages For First-Time Buyers As National Debt Piles Up

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The housing market is set to enjoy rare attention in the press this week as it plays multiple different roles in Rishi Sunak’s next budget announcement, due on Wednesday 3rd March.

It has already been much-reported that the Chancellor’s announcement will answer some important questions around the stamp duty holiday. Sunak is expected to extend the scheme to at least mid-late June 2021.

It was feared that a sudden end to the stamp duty holiday on March 31st would result in thousands of home sales falling through, creating a significant market slump. 

By extending the scheme until June, the government hopes an active housing market can continue to support a struggling economy, but critics say the eventual problem of a ‘cliff edge’ end to the scheme has not been avoided but simply kicked down the road; a problem we’ll have to deal with in June rather than March. 

95% government-backed mortgages

While stamp duty will no doubt steal the limelight from Wednesday’s budget, a second property-based announcement is expected; one which could have far more wide-ranging positive effects. 

Sunak is set to announce a ‘mortgage guarantee scheme’ to help people get on the ladder despite having only small cash deposits available. 

The plan is for the government to offer incentives to private mortgage lenders who offer 95% LTV mortgages to first-time buyers. This means that, in theory, a first-time buyer will be able to buy a £200,000 home with just a £10,000 deposit. 

Such accessible mortgage rates used to be common but, in recent years, the number of lenders offering 95% LTV has dropped. In the past year, with so much market uncertainty created by Covid-19, this number has dropped even further. 

Since the pandemic has shown recent signs of ebbing gradually away, a few high street lenders have reintroduced new 90% LTV mortgages, including Virgin Money and Metro Bank.  

If the government follows through with this promise to incentivise more lenders to offer the same deals, the UK housing market could be wide open to first-time buyers like we haven’t seen since the 80s. 

National debt piling up

Of course, we cannot ignore the financial implications all of the government’s recent unplanned expenditure has for the wider economy.  The more money Sunak et al throw at the pandemic – from ‘eat out to help out’ and furlough to this new mortgage promise – the more they, or perhaps more accurately ‘we’, will have to pay back. The vast majority of this will be retrieved by increasing taxes up and down the country. 

Chancellor Rishi Sunak, according to BBC News, says ‘public finances are facing a challenge from the pandemic’s impact on the economy’. This is a slight understatement given that, to date, the government has borrowed £271bn this financial year,  £222bn more than was borrowed during the year 2019-20. This means that national debt has risen to £2.13 trillion.

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