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UPDATED: Is now a good time to buy a house?

author: Adele Kitchen

By Adele Kitchen

The housing market is constantly changing from one month to the next. Throw a global pandemic and stamp duty changes into the mix, and it can feel more uncertain than ever. 

In the year up to May 2021, there has been a 10% increase in house prices in the UK. This is likely down to the introduction of the stamp duty holiday in July 2020, and the 95% Mortgage Guarantee Scheme in April this year.  

Both of these incentives were brought in by the government to boost the housing market, following the initial impact of the pandemic. 

So, is now a good time to buy a house? 

There are several factors to consider when deciding if it’s a good time to buy a house, including: 

  • stamp duty thresholds
  • Mortgage Guarantee Scheme
  • interest rates
  • house prices

We look at each of these, to help you get a good overall picture of the housing market today.  

Remember, you should always seek financial advice from a mortgage adviser before you apply, to help you make the right decision based on your individual circumstances.   

Stamp Duty Land Tax (SDLT) 

On 1st July this year, the stamp duty holiday started to be tapered off, and the threshold was reduced from £500,000 to £250,000 in England and Northern Ireland. 

This new change means that you won’t need to pay a penny of stamp duty on a house worth £250,000 or less - if you complete the sale before the deadline of 1st October 2021. But stamp duty will still apply on any amount above this figure. 

For example: In September 2021 you buy a house worth £275,000. The stamp duty you owe will be calculated as follows: 

  • 0% on the first £250,000 = £0
  • 5% on the remaining £25,000 = £1,250
  • total stamp duty payable = £1,250

Can I still save stamp duty? 

Even though the threshold has been reduced to £250,000, it’s still double what it was before the pandemic. So, there are still some savings to be had - if you are quick. On average, a house buyer could save around £1,730, if they complete before 1st October.  

55% of buyers who had their offer accepted in June will complete before the deadline. So, if you’ve already started the house-buying process, you may still be in with a chance of saving a wad of cash. 

Unfortunately, if you’ve just started house-hunting, then the sale is unlikely to go through in time (unless the government decides to extend the stamp duty holiday further). This is because it can take a few months from getting your offer accepted to collecting your keys.  

Read on to find out how long it takes to buy a house. 

Do first-time buyers get stamp duty relief? 

Yes, if you are a first-time buyer in England and Wales or Northern Ireland, you will be able to benefit from stamp duty relief on a residential property worth £300,000 or less (as long as you intend to use it as your main home).  

If the property is worth more than £300,000, then you will pay 5% SDLT on any value between £300,001 and £500,000. Standard rates apply on values above £500,000. 

This has been in place since November 2017 and will still apply to first-time buyers when the stamp duty holiday ends. 

When does the stamp duty holiday end? 

The stamp duty holiday will end on 1st October 2021, and the standard threshold of £125,000 will be re-introduced in England and Northern Ireland. 

You can use the government's stamp duty calculator to work out how much you would need to pay. 

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Will house prices drop in 2021? 

There’s some speculation that after the stamp duty holiday ends, demand for housing may reduce, leading to a drop in prices. For example, The Centre for Economics and Business Research has predicted a 14% decrease in house prices by the end of 2021. 

However, you also need to factor in low mortgage rates and the return of 95% mortgages, which could sustain the housing market - some say at least until the end of the year. 

5% deposits are back 

Due to the pandemic, mortgage lenders started asking for larger deposits as a means of security. Deposit prices were upped to around 15%, and many people found it hard to move on the property ladder.  

So in April 2021, the government introduced the 95% Mortgage Guarantee Scheme, which reduces the risk to lenders – making them more willing to accept 5% deposits.  

95% mortgages are still subject to the usual credit checks, but it means that you'd only need to save a 5% deposit to help you get on the ladder. 

Several banks have already signed up for this scheme, including: 

  • NatWest
  • Barclays
  • HSBC
  • Lloyds
  • Santander
  • Virgin Money

The scheme is set to last until 31st December 2022.  

Low mortgage rates 

Mortgage interest rates are at record lows at the moment – with the most competitive rates reserved for those with at least a 40% deposit. 

But there are also other fees that you should consider too, such as booking fees and arrangement fees, for example. Once you include these fees in your calculation, you’ll be able to see if you’re really getting a good deal overall.  

Remember, if you add a fee onto your mortgage loan, you will be paying interest on it for years to come. So, it can work out cheaper to pay for any fees upfront instead. 

Assessing the housing market 

The UK House Price Index is a good place to start when getting a feel for the housing market. It will tell you how property prices have performed over the last 12 months, and you can break it down by property type.  

For example, it will tell you that as of May 2021, the average house price in the UK was £254,624. It can't predict what will happen in the future, but you can use the data to compare the changing prices. 

It's also a good idea to keep an eye on property sites such as Rightmove and Zoopla. Keep checking the recent sold prices in the area you want to live, to see how the market has changed. 

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Is it cheaper to rent or buy? 

For the past five years, it has been cheaper to buy than to rent on a monthly basis. But this has changed over the past year with interest rates rising on 95% mortgages, and house prices rising in general.  

In May 2021, it was £195 per month cheaper to rent than to buy (for a first-time buyer with a 5% deposit). However, the gap is expected to close by the end of this year. 

When is the best time to buy? 

If you are looking to buy soon, consider the following points: 

  • typically, the height of summer when people are away or Christmas when people are busier than usual, tend to be the best times of year to buy. With less demand, there's less competition meaning prices should usually be lower.
  • your personal circumstances will also dictate when it’s the best time to buy a house. Moving is often stressful, so avoid buying at other times of stress, like around the time of a wedding or if you're having a baby.
  • when you want to apply for a mortgage, showing you're financially stable is best. So, try to avoid buying a house when you've just changed jobs or if your credit score needs some improvement. 

Read on to find out how much deposit you need to buy a house. 

This information is correct at the time of writing: 21st July 2021.

Disclaimer: All information and links are correct at the time of publishing.

author: Adele Kitchen

By Adele Kitchen

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