Post Mini Budget – What happens to the housing market now

The UK’s new chancellor Jeremy Hunt’s reversal of the tax trimming measures previously announced could have several potential impacts on the economy.

Firstly, it could help to stabilise the pound and restore market confidence, as investors may view the reversal as a positive step towards fiscal responsibility.

However, it may also result in a decrease in foreign investment in the short term, as investors may be uncertain about the direction of the UK’s economic policies.

It’s important to note that the impact of these actions will depend on a variety of factors, including the current state of the economy, global market conditions, and the actions taken by other countries.

It may take time for the full impact of the reversal of the tax-trimming measures to be felt, and it’s possible that other economic factors could have a greater impact on the UK’s economy in the coming months and years.

What now?  It’s difficult to predict with certainty what the future holds for the UK’s economy and whether the reversal of the tax trimming measures by Jeremy Hunt will create the stability he hopes for.

However, there are several factors that could influence the outlook for mortgage customers and first-time buyers in the coming years.

One key factor is interest rates. If interest rates remain low, this could provide some relief for mortgage customers, particularly if they are able to secure a new fixed-rate deal before their current one expires.

However, if interest rates rise, this could make it more difficult for borrowers to keep up with their repayments, particularly if they are already struggling financially.

Overall, while stability may be the most important objective for the UK at the moment, achieving it will likely require a combination of measures, including sound fiscal and monetary policies, as well as targeted initiatives aimed at supporting vulnerable groups, such as mortgage customers and first-time buyers.

What mini-budget plans has Jeremy Hunt thrown out?

• The removal of the top rate of tax for highest earners
• Corporation tax increases have been abolished.
• Help with energy bills
• Income tax on dividends to increase by 1.25%
• Overseas tourists to benefit from VAT shopping
• The basic rate of income has been cut

What else from the mini-budget is staying?

• The national insurance hike reversal? Staying
• Proposed stamp duty changes – staying
• The plans to put a cap on bankers bonuses is not scrapped, and staying

Those earning over £12,570 will see national insurance drop to 12%

This will provide some relief; however the impact is minimal for those who need it most.

Whilst the National Insurance cut may provide some relief for individuals, it could also have broader implications for the UK economy, such as a reduction in funds available for state benefits and services.

As with any economic policy, there are trade-offs to be considered.

Will the FTB Stamp Duty changes help the housing market?

The increase in the nil-rate band for first-time buyers is certainly a positive step towards making homeownership more accessible to those who may otherwise struggle to get on the property ladder.

However, there are other factors that may make it difficult for first-time buyers to purchase a home, including high property prices, increased mortgage repayments, and strict affordability criteria.

While historically low-interest rates may have helped to boost sales in the past, the current environment of rising inflation and economic uncertainty means that interest rates may not remain low indefinitely.

This could make it more difficult for first-time buyers to secure a mortgage with favourable terms.

In addition, the issue of strict affordability criteria may make it difficult for some first-time buyers to qualify for a mortgage, particularly if they have limited savings or a low income.

This could create a situation where only a select group of people are able to access the housing market while others are left struggling to find affordable options.

Overall, while the increase in the nil-rate band for first-time buyers is a positive step, more may need to be done to address the wider issue of affordable housing, including addressing factors such as property prices, mortgage interest rates, and affordability criteria.

So will the Stamp Duty changes help first-time buyers purchase in 2023?

if there were to be a decrease in demand for property, it could potentially lead to a decrease in property prices and interest rates, which may make it more affordable for first-time buyers to enter the housing market.

A decrease in property prices could mean that first-time buyers may need a smaller deposit, which would decrease the amount of mortgage needed and ultimately lower monthly mortgage repayments. This could make it more feasible for first-time buyers to afford a home without struggling to meet their monthly expenses.

What are the new Stamp Duty changes for first-time buyers?

• £0 – £425,000 – None
• £425,001 – £625,000 – 5%
• £625,001 – £925,000 – 8%
• £925,001 – £1.5 m – 10%
• 1.5m+ – 12%

Stamp Duty band Increased from £125,000 to £250,000

The Stamp Duty cut could make it easier for existing homeowners to move up the property ladder, as they would have to pay less in taxes when buying a more expensive property.

This could have a cascading effect on the housing market, as it could free up smaller and more affordable properties for first-time buyers, who would then benefit from the increased nil-rate band.

However, it’s important to consider other factors that could impact the overall cost of buying a property, such as mortgage repayments and the overall affordability of the housing market.

• £0 – £250,000 – None
• £250,001- £925,000- 5%
• £925,001 – £1.5 m – 10%
• 1.5m+ – 12%

Current cap on banker’s bonuses to be abolished

Jeremy Hunt’s decision to abolish the cap on bankers’ bonuses has been met with criticism, particularly from opposition MPs and some financial experts.

Some argue that the policy could lead to a public backlash against mortgage lenders and banks during a time of economic uncertainty, particularly as many people are struggling with rising living costs and stagnant wages.

In addition, there are concerns that the removal of the cap could lead to a return to the excessive and risky bonus culture that many believe contributed to the 2008 financial crisis.

However, others argue that the cap has been ineffective, as it has led to banks simply increasing fixed salaries to make up for the reduced bonuses.

As for the maintenance of the 45p rate of tax on higher earnings, this could lead to increased tax revenues from wealthy bankers and other high earners.

However, it remains to be seen whether this will have a significant impact on overall tax revenues and the government’s ability to fund public services and infrastructure.

Will the Bank of England still hike interest rates?

The BOE raised interest rates to in an attempt to reduce the UK’s annual inflation rate, which now sits at 10.1%, well above the target rate of 2%.

The market is pricing in further interest rate rises throughout 2023, they predict the Bank of England base rate could rise as high as 4.6% by July 2023, before slowly falling over the next 5 years to around 3.5%.

The average interest rate on a two-year fixed-rate mortgage is currently 5.15%, although if the Bank of England increases it base rate faster than expected, mortgage rates will rise further.

Those on tracker mortgages should seek mortgage advice

It’s a good idea for people on tracker mortgages to consider switching to a fixed-rate mortgage, especially if interest rates are expected to rise.

A fixed-rate mortgage means that the interest rate and monthly payments will remain the same for a set period of time, providing certainty and stability in terms of mortgage repayments.

Tracker mortgages, on the other hand, have interest rates that are linked to the Bank of England’s base rate, meaning that the monthly payments can fluctuate depending on changes to the base rate.

As interest rates are predicted to rise, people on tracker mortgages could see their monthly repayments increase, which could be financially challenging.

Switching to a fixed-rate mortgage could provide peace of mind and stability for those who prefer a predictable mortgage repayment plan.

However, it’s important to consider the fees and charges involved in switching, as well as the length of the fixed rate period and the interest rate being offered, to ensure that it’s a financially viable option.

It’s recommended to seek the advice of a mortgage broker or financial advisor before making any decisions. If you’re looking to buy or remortgage, our team at Strive Mortgages would love to hear from you.

For more information on the best mortgages for you, please contact a member of the Strive team, by emailing info@strivemortgages.co.uk or call us on 01273 002697.