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New 5% Deposit Scheme Could Help Millions of First Time Buyers
As part of the 2021 Budget outlined by Chancellor Rishi Sunak this week, major banks and lenders are to be offered incentives to help more first-time buyers get on the property ladder.
Ahead of the official announcement, the Treasury affirmed the government’s intent to support lenders offering 95% mortgages (with just a 5% deposit requirement), which, for the most part, disappeared entirely from the market over the past 12 months.
The Chancellor spoke of the major economic challenges posed by the pandemic, spurring an increase in national debt to ÂŁ2.13 trillion.
“We went big, we went early, but there is more to come, and there will be more to come in the budget. But there is a challenge [in the public finances], and I want to level with people about the challenge,” he explained in an interview with the Financial Times.
“I will do whatever it takes to protect the British people through this crisis, and I remain committed to that.”
At the same time, others raised the issue of seemingly inevitable tax rises, insisting that the Chancellor clarify his position on when and to what extent the country can expect them to occur.
“If we don’t get it under control before inflation comes back, then we will face a financial crisis,” warned former Conservative chancellor Lord Clarke, who insisted that an increase in taxation was an urgent priority.
A helping hand for first-time buyers
The incentives for banks willing to offer 95% mortgages could potentially help millions get on the property ladder for the first time. It has become apparent that the employment prospects and financial situations of young adults across the country have been devastated by the pandemic.
While the government will be actively encouraging first-time buyers to set their sights on property purchases in the near future, major lenders have affirmed their commitment to lending exclusively to those who are clearly in a comfortable financial position with a guaranteed long-term source of income.
This is therefore likely to mean that even where the 5% minimum deposit requirement applies, it may still be difficult to qualify for a mortgage under the current conditions.
However, the scheme is by no means exclusive to first-time buyers or for the purchase of new homes. It has been capped at a maximum of ÂŁ600,000, but it will be accessible to existing homeowners as well as newcomers to the housing market.
Commenting on the introduction of the new incentive scheme, the Treasury highlighted the scarceness of low-deposit mortgages available at the beginning of 2021; just eight in total were being offered in England during January.
The scheme is officially set to be rolled out across the UK in April, at which point the government will begin shouldering some of the risk of these high LTV loans. Its introduction could take place immediately after the withdrawal of the stamp duty holiday, which is expected to be terminated on March 31.
When is a Secured Loan a Good Option?
An unsecured loan can be a versatile and conveniently accessible financial tool for short-term borrowing requirements; however, unsecured loans are typically only available for relatively small sums and are repaid using regular monthly payments over an agreed-upon timescale.
With secured lending, significantly greater sums are often available for repayment over a much longer period of time. The most common example of a secured loan is a mortgage, wherein the applicant borrows to buy a home and repays the balance over 10 to 35 years.
Secured lending is the provision of security (aka collateral) by the applicant, which is used as an insurance policy to repay the loan. In the event that the loan is not repaid in full, the lender has the legal right to take ownership of the security, sell it, and use the proceeds to recoup their losses.
A secured loan therefore carries the risk of forfeiting assets but can nonetheless be beneficial in a variety of ways.
What are the benefits of secured lending?
The main benefits of secured lending are the option of borrowing a relatively large sum of money, and they are available for most legal purposes. If sufficient equity is available in your property to cover the loan amount should the loan default, you have a high chance of success.
Even poor credit and a lack of income (bridging loans only) may still be considered.
In addition, the reported average completion time for a secured loan at the end of 2020 was just 13 days. Repayment options are also flexible, allowing borrowers to repay the loan over their preferred period, dependent on affordability, anything from a few months (for bridging loans) to 40 years.
With competition among UK lenders at an all-time high, typical interest rates for secured loans are at the most competitive that they have ever been.
When is a secured loan the right option?
As for when a secured loan represents the ideal option, there are technically no legal limitations to where and how the funds can be used. Therefore, a secured loan could be the perfect option in any instance where the following is required:
Significant loan amounts: Secured lenders offer loans starting from ÂŁ10,000 upwards, making secured loans ideal when you need to borrow a significant sum of money for a major purchase, project, or investment.
Long-term repayment: Being able to spread out the repayments on a secured loan over several years or decades provides the borrower with access to affordable monthly repayments.
Poor credit borrowing: As secured loans are typically issued primarily on the basis of security, it is possible to qualify for a competitive deal with a poor credit history or no credit history.
Business loans: As the vast majority of businesses have a variety of valuable assets at their disposal, secured loans can be used as competitive and versatile business loans for a long list of purposes.
If you can prove that you can comfortably afford the repayments on your loan, secured lending could enable you to access the funds you need at a competitive rate of interest.
London’s Financial Service Sector Remains in Post-Brexit Limbo
In the weeks since Brexit became a reality, the whole UK economy has been something of a mixed bag. On one hand, predictions of immediate and outright Armageddon for the country’s entire business community turned out to be exaggerated. On the other hand, there are those who still see a doomsday scenario, but not just yet.
Either way, the financial services sector is currently in a state of limbo, with various forecasts and opinions. In 2019, the sector’s total economic contribution was an enormous 7%, somewhere in the region of £132 billion. It is also a surprisingly prolific employer, creating at least 1 million jobs, a sizeable portion of which are based in the City of London.
To date, no formal agreement has been made between London and Brussels with regard to the regulation of financial services following the UK’s departure from the EU. Talk continues of an agreement by the proposed March 31 deadline, but nothing has yet been set in stone.
This has had the potential to prove problematic, given how the financial institutions in the UK trade euro-denominated shares and bonds from within the euro bloc. Measures have been established to temporarily enable such trades to continue, and the Financial Conduct Authority is allowing companies in the UK to trade EU derivatives until June, but what happens next is a subject of heavy debate.
No mass exodus from London
Late last year, it was estimated that a minimum of 7,500 jobs and more than ÂŁ1.2 trillion in assets had been relocated from the UK on the part of financial institutions and service providers preparing for the chaos to follow; however, many predictions of a mass exodus from London have so far turned out to be somewhat exaggerated, and many new European finance houses have instead relocated to London to ensure access to the UK market.
Deutsche Bank, for example, warned last year that as many as 4,000 workers would be moved to Frankfurt after Brexit. As of now, Deutsche Bank and other major players appear to be holding out, waiting to see what actually happens before making any major decisions.
Depending on the agreement reached between London and Brussels, it could become entirely unnecessary for the financial services sector to suddenly extract many thousands of workers from the UK. This will only occur if equivalence is not granted for specific segments of the market, which may or may not happen.
Strong forex sector
Irrespective of the above, Brexit has so far had no negative impact whatsoever on currency trading in the City of London. The UK continues to account for almost 45% of the entire global forex market, which over the past three years has achieved growth of six percentage points.
The United States is the second-biggest player in currency trading, with a market share of around 16.5%.
London will continue to be one of the world’s most attractive locations for currency trading, not least due to its strategic position and time zone midway between Asia and the USA. This is unlikely to be affected by any Brexit-related issues, particularly while the EU’s currency trading experience and infrastructure remain so broadly distributed and fragmented.
UK House Prices Continue to Climb as Stamp Duty Deadline Looms
Since it was announced, the March 31 stamp duty holiday in England has been predicted to result in a slow but steady decline in average property values. Following an initial rush of interest, the number of prospective buyers looking to purchase homes prior to the deadline has gradually diminished over recent weeks.
Nevertheless, new data from Rightmove suggests that not only is property market activity still relatively high, but that average house prices continued to rise throughout January and the beginning of February. Specifically, average property values increased by approximately 0.5% over the course of a month, following three months of consecutive losses.
The data published by Rightmove tracked average property values from January 10 to February 6.
Property purchase intent remains high
Compared to the same time last year, Rightmove reported an increase in website activity of more than 45% during the first week of February. Additionally, agreed-upon purchase volumes for the same period of time were up by approximately 7%.
However, the number of new properties being listed on the market was down more than 20% from the same time last year. According to Rightmove, this could be partly to do with current lockdown restrictions forcing would-be movers to rethink their plans.
“As well as the current lockdown motivating buyer demand again, the restrictions have also been a factor in limiting new supply, leading to some modest upward price pressure,” Tim Bannister, director of property data, said.
“These are strong signs that new buyer demand is not facing a cliff-edge after March 31.”
Buyers seek alternative funding solutions
The temporary stamp duty holiday, announced by the chancellor last year, renders all primary home purchases up to a value of ÂŁ500,000 exempt from stamp duty taxation. In the weeks and months following the commencement of the scheme, buyers began scrambling to secure mortgages and purchase homes prior to its expiration.
As the countdown to the March 31 deadline continues, funding property purchases with conventional mortgages from major banks is no longer an option. With so many banks still dealing with a backlog of mortgage applications, there is insufficient time left to process new applications before the deadline.
This has led to many buyers actively seeking alternative funding solutions, such as bridging finance. Many types of specialist-secured loans accessed via established brokers can reduce underwriting times to days rather than weeks.
There is still time to take advantage of the stamp duty holiday, though the help needed to purchase a property at short notice is rarely available on the High Street.