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The most-searched mortgage questions right now

With the stamp duty ‘holiday’ extended and a flurry of spring activity across the property market as Covid-19 restrictions begin to be eased, buyers are taking to the internet to find answers to key questions.

Many of those queries are related to mortgages and stamp duty, so here we have answered the 10 most searched-for questions…

1. Will mortgage holidays be extended?

Mortgage holidays were introduced as part of the government’s Covid-19 support measures back in the spring of 2020.

Under the coronavirus support, you could apply for a mortgage holiday of up to six months if your income had been impacted by the pandemic – but you’ll need to act fast if you want to take advantage.

The deadline for applications is Wednesday, March 31 and the mortgage holiday scheme will end completely on July 31, 2021.

That means a maximum of three months is now available as a mortgage holiday – even if you haven’t taken any of the maximum six months on offer.

2. Will mortgage rates go down in 2021?

Mortgage interest rates tend to fall and rise in line with the Bank of England’s base rate – and with the base rate at its lowest level in history at 0.1%, it’s very unlikely that mortgage rates will go down further in 2021.

For mortgage rates to be even lower, the bank’s base rate would need to fall again and that would place it in negative territory for the first time ever.

If you’re on a fixed rate mortgage, any rise or fall in mortgage rates in 2021 won’t affect you.

But if you’re on a variable or tracker mortgage, your mortgage rate adjusts in line with the bank’s base rate.

3. Where are mortgage rates headed?

The Bank of England base interest rate is currently at its lowest level ever – 0.1%.

Prior to the first Covid-19 lockdown in March 2020, the base rate was at 0.75% and had been at that level since 2018.

However, as the pandemic took hold, the bank cut rates twice in a week – first to 0.25% and then to that record low of 0.1%.

In June 2020, the Bank of England admitted it was considering introducing a negative interest rate for the first time and as recently as February 2021, it told mortgage lenders to prepare for that scenario as soon as July.

However, the bank’s decision will depend on the economic situation at the time.

4. Why are mortgage rates going up?

Mortgage rates aren’t going up – in fact, for some time now, they’ve been heading in the other direction.

With the Bank of England base rate at its lowest level ever, borrowing has never been more affordable.

But with rates so low, there is only really one direction they can head in over the long term – despite suggestions that a negative Bank of England base rate may be on the way.

However, the expectation is that the bank’s base rate will remain at 0.1% for the rest of 2021 as they look to hold on to the current confidence in the UK housing market.

5. When will 5% deposit mortgages come back?

Increased demand for high loan-to-value (LTV) mortgages in the late spring of 2020 saw lenders scale back on the number of 90% loans they offered – while almost all 95% mortgages were completely pulled from the market.

As of March 2021, meanwhile, only five 95% mortgage products were available, according to Moneyfacts.

However, the Chancellor Rishi Sunak confirmed that the government would be offering a guarantee scheme to encourage lenders to restart 95% loans, while the existing Help to Buy scheme means first-time buyers can get on the property ladder with just a 5% deposit.

6. How does the 5% deposit scheme work?

The government’s mortgage guarantee scheme was announced in March 2021 and aims to bolster the number of 95% mortgages on offer from lenders.

The scheme has been backed by a number of lenders already, with the loans on offer to buyers from April 2021 until December 31, 2022 as long as their purchase price doesn’t exceed £600,000.

As well as the mortgage guarantee scheme, first-time buyers also have the option to take out a Help to Buy equity loan – meaning they only require a 5% deposit to buy a property.

Everything you need to know about the Help to Buy scheme is covered in our helpful guide.

7. Who qualifies for 5% deposit mortgages?

The government’s 95% mortgage guarantee scheme is available to both first-time buyers and those who already own a home or have done in the past and have limited equity or a smaller pot of savings to draw on.

Lenders offering the 95% mortgages will undertake their own affordability checks on applicants.

The Help to Buy scheme, meanwhile, is open to first-time buyers only and offers an equity loan worth 20% (40% in London) of a new-build home’s purchase price. The buyer then puts forward a 5% deposit, with the remaining balance covered by a 75% mortgage (55% in London).

8. Are 5% deposit mortgages a good idea?

The reintroduction of 5% deposit mortgages by lenders will open the door to homeownership to many people who assumed it was closed to them, while the Help to Buy scheme continues to help first-time buyers get on the ladder.

A 95% mortgage, however, will mean you pay a higher interest rate on your repayments, while any fall in property prices could put you at risk of negative equity – where your property is worth less than the mortgage secured on it.

Before applying for a high loan-to-value mortgage, always seek independent financial advice.

9. What stamp duty will I pay?

The introduction of the stamp duty ‘holiday’ in July 2020 and extended until June 30, 2021 means buyers currently pay no stamp duty on the first £500,000 of a property’s purchase price.

For some, that means savings of as much as £15,000.

From June 30, 2021 until September 30, 2021, buyers will be exempt from stamp duty on the first £250,000 of a property’s purchase price, with first-time buyers exempt on the first £300,000.

Then, from October 1, 2021, stamp duty will revert back to its pre-pandemic rates – with buyers exempt on the first £125,000 and first-time buyers £300,000.

More details on the stamp duty rates from October 1 are available here.

10. Can stamp duty be added to a mortgage?

While stamp duty can’t be directly added to a mortgage, it’s possible to apply for a larger mortgage that covers your stamp duty payment.

By increasing your borrowing, you may be able to free up more money from your deposit to cover your stamp duty liability.

However, borrowing more on a mortgage means you’ll pay more interest over the term of the loan – and this will, in essence, mean you’re paying more in stamp duty.

Increasing your mortgage will also increase your loan-to-value (LTV) and this could see you paying back your loan at a higher interest rate.

Always seek independent financial advice before applying for a mortgage or increasing your borrowing.

Further reading…

The property market is traditionally at its busiest during the spring – and 2021 is looking no different, despite the ongoing pandemic.

Our spring property market update has all the details you need to know about buying and selling during this period.

And if you’re thinking of buying, having a mortgage agreement in principle in place can put you in a great position – our guide explains what an agreement in principle is and why you should get one.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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