Earlier this afternoon Chancellor Jeremy Hunt stepped into the limelight to deliver one of his most important budgets, trying to tread a fine line between delivering what the country needs and can afford, versus an increasingly desperate attempt to get voters onside before a General Election.
In the run-up to this, there had been an ocean of leaks about what could be in the budget, testing the ground to gage opinion, with a big emphasis on tax cuts and various schemes to help the housing market, including a will-they or wont-they debate on 99% mortgages and the introduction of a British ISA, amongst others.
Would they lay traps for Labour, knowing their chances of winning the next election were slim, or simply just steal some of Labour’s policies, such as ending preferential tax treatment for non-doms or taxing holiday let properties further?
What everyone seemed to be nervous about was any kind of repeat of the Kwarteng budget under Truss, the fallout of which we are still feeling today and has defined our economy and certainly the mortgage market over the past 18 months.
Markets and those of us at the sharp end of the economy, where anything that affects interest rates sees these effects almost instantly, waited with bated breath and a trickle of sweat on our brows.
It was evident from the start that the key political message the Chancellor was trying to convey was progress had been made and they were now in a better position to “help families with permanent cuts in taxation”. A nice sentiment, but by the time he had sat down, not many had bought it.
The big tax change was a further cut in National Insurance from 10% to 8%, as expected, and whilst this was presented with a sense of glee, the reality is that this does not make a huge difference to many, although from a mortgage perspective, it will give a marginal boost to lenders affordability calculations.
There was also the introduction of a British ISA, (an additional £5,000 limit to invest in UK equities), a good win for the campaigner Martin Lewis with the increase in the income cap for child benefit, and the ceremonial stealing of one of Labours’ policies on changing the tax status of resident Non-Doms coming into the UK.
The overall result, however, was a damp squib of a budget, long in length but short in cheer, especially for those in the property market or for First Time Buyers. Considering how important the housing market is, it was surprising that there were only minor announcements.
The best news was that the Chancellor reported that inflation was due to fall below their 2% target in a matter of a few months, no longer having to wait for a year or more. This was aided by the continued freeze on alcohol and fuel duty, which will help to reduce inflation.
This could well have an effect on SWAP rates in the coming days, pushing them down once more where they had previously risen in the past couple of weeks.
It seems the age of the 3% mortgage has stalled prematurely, with the last couple of weeks serving up a dish of déjà vu with brokers again working all hours to secure and survive a series of rate pulls, often with little notice, as lenders decide once again to increase rates, due to both higher SWAP rates and to protect service levels.
Of course, this all makes life difficult for those trying to find a new mortgage, as once again, quick decisions are needed or carefully worked out budgets need to be revisited, which can sometimes mean the difference between obtaining their dream home or not. A broker willing to work hard, like our lovely advisers, to secure these rates is priceless in this market.
Whilst we should see another turnaround in due course, the Bank of England does need to take note of the sentiment on our high streets – rate cuts are needed. The Office for Budget Responsibility, (OBR), does still foresee a turnaround, with bank rates falling by around 1% in total this year.
After being much trailed and discussed, we had confirmation that the idea of a 99% mortgage scheme had been put down before it even began, in fact, there was no sign of any help for First Time Buyers at all. No changes or abolishment of stamp duty, no extension of the current stamp duty incentive for First Timers, and no reintroduction of a Help to Buy ISA or changes to the Lifetime ISA.
Instead, we had a couple of measures to try to dissuade people from buying a holiday home, or multiple properties full stop.
The first was the abolishment of the furnished holiday lettings tax regime, a move designed to try to free up properties for locals in tourist areas, and the removal of the stamp duty relief to those buying multiple properties at the same time. Both moves will have a small effect, but due to the nature of those buying such properties, will likely be limited at best.
The bigger move was the Chancellors’ “Laffer Curve” moment, reducing a tax to get more income. This took the form of a reduction in the higher rate of property Capital Gains Tax from 28% to 24%, which may encourage some more amateur landlords to sell.
There is a danger this puts more stress on an already creaking Private Rental Sector, but it is unlikely to put swathes of properties back onto the market. Professional landlords are in the market for the long term and we could see properties passing from amateur to professional landlords rather than new buyers.
None of this addresses the issue of overall supply or the lack of social housing. Whilst house prices are expected to fall slightly this year, supply and pent-up demand will underpin the market for some time yet, with prices rising once more in 2025 and beyond.
And that, as they say, was that!
With white rabbits conspicuous by their absence, the Chancellor has gambled the house on a further tax cut and the vague promise of more which he knows he will not be able to deliver, which, whilst welcome, may prove to fall well short in convincing a sceptical public that a change is not needed.
This was a very political budget by a hamstrung Chancellor, laying traps for Labour and ensuring that they were unable to promise too much in their election manifesto. They do have an unruly mess to try and clean up if they do get into power, which seems ever more likely.
The biggest success will be that the markets will react tamely to this, and we can all get on with business as usual.
To speak to one of our friendly and down-to-earth advisors about any aspect of this, or to make a mortgage enquiry, please call us on 020 7220 5110 or click here.
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