Huddersfield First-time Buyers Can Now Buy Using 5% Deposit Mortgages, Yet higher mortgage rates could see Huddersfield buyers paying a lot more each month for the privilege

 Being a Huddersfield first-time buyer in the last 12 months has not been an easy thing. Just before lockdown there were 400 ‘5% deposit mortgage’ deals and first-time buyers were able shop around to get the best deal. When the first lockdown hit, 5% deposit mortgages disappeared, meaning that as many Huddersfield would-be first-time buyers were about to buy their first Huddersfield home in 2020, the rug was pulled from under their feet.

 

Today, you can count on two hands the number of mortgage deals which allow a 5% deposit. Even worse, the number of hoops one has to jump through to get a 5% deposit mortgage is very high (plus you have to pay handsomely for the privilege, with mortgage rates of at least 4.15%).

 

In putting down a 5% deposit, you borrow the remaining 95% as a mortgage. These 95% mortgages (or Loan to Value) were very popular with Huddersfield first-time buyers before the Credit Crunch. Nearly 1 in 6 mortgages were 90% to 95%+ Loan to Value mortgages in 2007 (15.5%), yet as the Global Financial Crisis hit in 2008/9 that dropped to only 1 in 63 mortgages being in 90% to 95%+ range in 2010 – meaning many Huddersfield first-time buyers were unable to buy their first Huddersfield home between 2010 and 2015.

 

 

Yet in the recent Budget, Rishi Sunak has vowed to back the building societies and banks so that they can offer more of these higher 95% Loan to Value mortgage deals.

 

Many people have said this will mean there will a Huddersfield house price boom – especially as Stamp Duty is extended until September

 

This scheme is nothing new as a practically identical scheme was launched by George Osborne in the 2013 Budget with his Help to Buy Scheme. Nearly 1 in 5 houses sold in the year after that budget used this scheme, yet Osborne’s was only for first-time buyers and it was only for brand new homes (not second-hand homes). Whilst there’s no doubt this caused an increase in house purchases, many commentators said it was a backdoor method to keep the country’s new homes builders afloat.

 

The big difference with this new 2021 scheme is that it’s available for Huddersfield second-hand homes as well and is open to all Huddersfield owner occupiers moving home

 

Yet, what will the banks mortgage interest rate charge be?

 

Although no building societies or banks have yet publicised what mortgage rates they will charge, all the High Street lenders including NatWest, Santander, HSBC, Virgin Money, Barclays and Lloyds have stated they intend to offer these 95% LTV mortgages.

 

Under the Government’s mortgage guarantee to the banks, Westminster will guarantee 20% of any mortgage offered at 95% Loan to Value. In principle, that means that building societies/banks should be able to offer the low mortgage rates as those available to people wanting to borrow 75% loan to value.

 

At the moment the average five-year fixed rate mortgage is 3.6% with

 a 10% deposit, but if you have a 25% deposit, you can fix it for

five years at 1.63%

 

However, don’t forget though that the banks will be charged a ‘still to be decided’ amount to use the Government guarantee. On the last Help to Buy Scheme, it was rumoured they were charged 0.9% of the mortgage borrowed, so this cost would have to be passed on to the first-time buyer. I would suspect the eventual rates Huddersfield first-time buyers will have to pay will be somewhere in the region of 3%.

 

This new 95% mortgage/5% deposit scheme is only going to work if the banks and building societies have sensible mortgage rates as it needs to help those Huddersfield first-time buyers it was intended to benefit, who are finding it hard work to get on the first rung of the Huddersfield housing ladder.

 

It all comes down to how anxious the banks and building societies feel about the true long-term effect of the pandemic once the furlough scheme ends in the autumn. Only time will tell.

 

Yet, to give you an idea of the difference the mortgage rates scheme will make on a typical Huddersfield terraced/town house…

 

The average price paid for a Huddersfield terraced/town house in the last 12 months was £127,100

 

Assuming a 35-year repayment mortgage and borrowing that amount on each scenario:

 

·         At the current best 95% LTV mortgage rate (i.e. 5% deposit) of 4.15% mentioned at the start of the article, that would cost £574 per month in mortgage payments

 

·         At the current average 90% LTV mortgage rate (i.e. 10% deposit) of 3.6% mentioned in the middle of the article, that would cost £533 per month in mortgage payments

 

·         At the best 75% LTV mortgage rate (i.e. 25% deposit) of 1.63% mentioned at the start of the article, that would cost £397 per month in mortgage payments

 

As you can see, quite a difference.

 

I have to applaud Rishi Sunak for this initiative, yet will it be ‘fields of clover forever’ for the Huddersfield property market with the new scheme? No, it won’t.

 

It will be a good boost to the Huddersfield (and UK as a whole) property market. Whilst the mortgage guarantee offers a small portion of security for the lenders, it does focus on the riskiest part of the housing market. Many lenders still have cold shivers of the Northern Rock 125% mortgage debacle from a decade ago and those memories still ring true today.

 

The fact is these types of mortgages will be a higher risk, even if the Government are underwriting them with their smaller deposits, which will come through in bank’s and building societies higher pricing for these mortgages. Also, the lenders are already at near full capacity trying to get hundreds of thousands existing property sales and purchase deals through because of the Stamp Duty rush over the last 9 months. I await the rates in early April and will make comment again.

 

If you are a Huddersfield homeowner, potential Huddersfield first-time buyer or anyone involved in the Huddersfield property market and you would like to chat about anything I’ve covered in this article or any of my other articles on the Huddersfield property market, please don’t hesitate to drop me a line.

 

Huddersfield Home Buyers £11,323,188 Windfall as Stamp Duty Holiday Stretched to September… ...and new 5% deposit mortgages for Huddersfield first-time buyers

The Chancellor Rishi Sunak announced two initiatives to keep the Huddersfield property market firing on all cylinders into 2021.

 

Firstly, the £500,000 zero-rate Stamp Duty band has been extended to the 30^th June 2021. After then it will phase down to £250,000 for an additional three months, returning to the pre-pandemic levels on the 1^st October 2021. Secondly, Mr Sunak announced a scheme that will allow Huddersfield first-time buyers to buy their Huddersfield home with a 5% deposit from this April. Let me look at what each initiative means to the Huddersfield property market.

 

1.     Stamp Duty Holiday extension for Huddersfield home buyers

 

Coming out of the first lockdown in the early summer of 2020, there was a lot of apprehension that the British property market would flounder. Therefore, when the Stamp Duty Holiday was announced back in July 2020 to boost the property market, the deadline was set at the 31^st March 2021.  Little did anyone know of the snowball effect of people wanting to move because of the initial lockdown in the spring of 2020, the pent-up demand following the conclusion of the EU negotiations with the subsequent ‘Boris Bounce’ and then the Stamp Duty Holiday which made the perfect storm for what has been the busiest property market in Huddersfield since 2001/2.

 

The average stamp duty paid by a

Huddersfield homebuyer is £1,129

 

The reason the Stamp Duty extension is important is that many estate agents and solicitors have been warning for the last couple of months that home buyers would pull out of property deals or renegotiate if they could not complete their sale in time before the Stamp Duty Holiday ended.

 

So, by phasing down the Stamp Duty Holiday, this will allow some breathing space for burdened solicitors and mortgage lenders, thus decreasing the number of buyers pulling out of their property purchase because they unexpectedly have to find up to an extra £15,000 in Stamp Duty when property sales do not complete on time.

 

There are currently 1,172 properties that are sold STC in Huddersfield alone and the vast majority of those will save money on their stamp duty because of this extension

 

So, what does the Stamp Duty extension mean for Huddersfield house prices?

 

The extension has heightened confidence in the Huddersfield property market. The Government watchdog ‘The Office for Budget Responsibility’, has predicted that house prices in 4 years’ time will be just over 13% higher, compared to their pre-Christmas predicted figure of 11% growth (over the same time frame).

 

2.     5% deposit mortgages for Huddersfield first-time buyers

 

From next month, Huddersfield first-time buyers will be able to buy Huddersfield homes worth up to £600,000 with a 5% deposit and a Government-backed mortgage with a fixed rate of up to 5 years.

 

Rishi Sunak wants to turn the millennial ‘Generation Renters’ into ‘Generation Buyers’ and believes this initiative should be able to help two million people get on the property ladder. When we look at what that would mean for Huddersfield, I estimate …

 

5,247 Huddersfield people could be helped onto the

Huddersfield property ladder with these 5% deposit mortgages

 

The Government backed scheme will be open to Huddersfield first-time buyers for 21 months (until the end of 2022) and available from lenders including NatWest, Lloyds and HSBC (plus others to be announced soon). It will be available on all Huddersfield homes new or second hand (previous schemes applied to new homes only).

 

5% deposit mortgages were all but withdrawn from the market at the start of the pandemic in spring 2020 with an almost default minimum deposit of 10% (even as high as 15% in the autumn just gone) putting homeownership out of reach for all but the wealthiest Huddersfield first time buyers.

 

I must admit I found it a scandal that homeownership among the 25 to 34 year olds plummeted from 69% in 1981 to 36% by 2014, although with certain Government incentives and low interest rates since then, that had risen to 41% by last year, but it’s not enough

 

With so many young families paying huge sums in rent, who could effortlessly afford to make mortgage repayments on the same property, they haven’t been able to save enough for a 10% initial mortgage deposit, let alone 15%.

 

Yet now with these new 5% deposit mortgages, many Huddersfield first-time buyers will be able to afford to buy their first home in Huddersfield. Banks will typically lend between four and a half and five times the gross annual income – this means with a modest 5% deposit; many Huddersfield 20 and 30 somethings will now be able to buy their first home. Just before I finish this topic, the 5% deposit mortgages will also be available to current Huddersfield homeowners who don’t have the equity built up in their existing home – thus helping second or third (or more) time Huddersfield buyers as well.

 

How do both of these changes affect Huddersfield buy-to-let landlords?

 

I know many of you Huddersfield landlords are adding to your Huddersfield rental portfolio because of the Stamp Duty Holiday and with the extension, you too will save some money from it. The issue of first-time buyer mortgages does mean the demand for private rented accommodation in Huddersfield might not be as strong in the coming decade.

 

Don’t get me wrong, tenant demand will continue to outstrip supply of Huddersfield rental properties for the foreseeable future, yet the tenant/landlord balance could alter slightly in the medium term. Huddersfield landlords need to take a long hard look at their properties and ascertain if they are fit for purpose both now and into the 2030’s. Tenants are becoming a lot more demanding of what their rental property offers. Wood chip wallpaper, avocado green bathroom suites and kitchens fitted in the 1990’s (or before) simply won’t cut the mustard in the next decade.

 

The demand from Huddersfield tenants for properties with larger gardens, or the ability to keep pets or an extra reception room/garden office to allow them to enjoy their rented home more and also being able to work from home will ensure greater demand for your rental property … and the best bit, they will pay handsomely for that in higher rent.

 

If you are a Huddersfield homeowner, buyer, tenant or landlord and you want to discuss your options on selling, buying or renting a property in Huddersfield and the surrounding area, do not hesitate to contact me personally.