Autumn Statement 2022: Will it impact mortgages?
Stability. Growth. Public services. These are the three pronouncements the Chancellor of the Exchequer used to preface his Autumn 2022 Statement with. To achieve this? Austerity. Taxes have risen for millions and public spending has been cut. There is less money in people's pockets for the foreseeable.
What does the Statement mean for the housing market? There was precious little information given during the Chancellor's speech. His plan to reduce mortgage rates was seemingly rolled up into the overall strategy to tackle inflation and the cost of living crisis.
There were, however, some glaring statements and surprising omissions. Here are our main takeaways of the Autumn 2022 Statement in relation to the property market:
No new support for first time buyers, despite Help-to-Buy ending for new applicants on 31st October 2022.
Stamp duty cuts installed by Liz Truss and Kwasi Kwarteng to remain until 2025.
Short-term holiday let taxation remains untouched.
Capital gains tax raid on buy-to-let landlords confirmed: £12,300 annual exempt amount cut to £6,000 in 2023 and to £3,000 in 2024.
Council tax can be raised by 5% by local authorities, in order to support social care.
Energy bills confirmed to rise in April 2023, despite help being extended.
No new help for first time buyers
The Help-to-Buy loan scheme officially ended for new applications on 31st October 2022, and the government’s Mortgage Guarantee Scheme is due to close at the end of 2022.
Given the mortgage market turmoil in recent months, Jeremy Hunt announcing new support for first time buyers might have been seen as a ‘win-win’ scenario. However, the issue was side-stepped.
Despite Rightmove announcing average property prices dropping by 1.1% between October and November 2022, property demands for first time buyers are still 4% higher than pre-pandemic levels. This means purchasing competition is still fierce in the first time buyer market.
Stamp duty cuts to remain until 2025
The stamp duty cuts announced during the Liz Truss Premiership will remain until 2025. This will be welcome news to first time buyers given the lack of new support.
You can find our stamp duty calculator and guide here for further information.
No short-term holiday let tax overhaul
Thanks to the popularity of apps such as AirBNB, short-term holiday lets have flourished.
However, reductions in tax relief in 2016 for long-term lets pushed more landlords into the short-term market (where there are various tax benefits long-term lets do not enjoy). As a result, there have been concerns around how the increase in short term lets has contributed to the UK’s housing crisis in popular holiday destinations.
To combat this, the Office for Tax Simplification (OTS) suggested the favourable tax treatment of short-term holiday lets should be scrapped. However, nothing was mentioned in the Autumn 2022 Statement.
A Capital Gains Tax raid to de-incentivise buy-to-let landlords
When selling an asset, such as a second home or a buy-to-let property, that has increased in value, Capital Gains Tax (CGT) will be charged once the tax-free allowance of £12,300 is exceeded. Currently, on a residential property, CGT is currently charged at 18% for basic rate taxpayers and 28% for higher rate taxpayers.
During the Autumn 2022 Statement, Jeremy Hunt announced the CGT tax-free allowance will be slashed to £5,000 next year, and to £3,000 in 2024 - potentially triggering a sale of buy-to-let properties.
A council tax shake up
In order to raise more money from homeowners and help fund social care, the government will empower local authorities to increase council tax by up to 5% a year from April 2023 without a referendum - 3% for all local authorities and an additional 2% for local authorities with social care responsibilities.
Previously, councils were not allowed to increase council tax thresholds by more than 2.99% each year. Any changes to the system would normally require a local referendum. However, this has now been changed.
It's now imperative that you take council tax bands into account whether you’re searching for a property or are already a homeowner.
Historical context and why it matters
Since the 2008 financial crisis, and up until 2021, the Bank of England (BoE) undertook a process called quantitative easing. This is where the BoE bought a number of government gilts, a form of debt issued by companies (corporate bonds) or the government (gilts), to raise money. These gilts are essentially government ‘IOUs’ that mature over a long period of time.
The BoE stated that the aim of quantitative easing was to help lower the interest rates on savings and loans. For context, prior to the 2008 financial crisis, the BoE base rate sat at 5%. To Support the UK economy in its wake, however, the BoE reduced this rate to 0.5% by March 2009. This helped to stabilise the economy and keep the things we buy affordable. This prompted a property boom and the low mortgage rates enjoyed up until this year
The BoE is now no longer buying these government gilts and, since 1st November 2022, have begun selling them in a bid to reduce its emergency stimulus to the economy. This is a process called ‘quantitative tightening’. It is this act, along with the eight increases to the base rate since December 2021, that the BoE believes will help drive down inflation.
The impact of the September 2022 mini budget
While mortgage rates had been rising slowly throughout 2022, it was the unfunded tax cuts, announced by then-chancellor Kwasi Kwarteng in the September mini-budget, that dramatically accelerated their increase.
The BoE stepped in to begin buying gilts again, after it had already stated it was due to begin the quantitative tightening process. Andy Verity, the Economics Correspondent at the BBC, had this to say on the matter"
“The day before the mini-budget, the Bank had announced it would start to sell some of the £895bn of government bonds it had bought to try and keep the cost of borrowing down.
When more investors buy bonds than sell them, prices rise and the interest rate - known as the yield - drops.
In 2020/2021, the Bank's presence as a buyer in the market was crucial in enabling Rishi Sunak to borrow more than £300bn in to support the economy through Covid, without any offsetting tax rises or spending cuts.
The Treasury could borrow vast sums by issuing as many bonds as it liked to investors who didn't insist on higher interest rates to compensate for the risk of lending to a hugely-indebted government - because they could always sell the bonds straight away to the Bank.
By contrast, when the mini-budget was announced, there was no such buyer propping up bond prices, and therefore keeping down yields, because the Bank had announced it was now a seller.”
The unfunded nature of Kwarteng’s tax cuts caused financial market turmoil, leading to mortgage lenders pulling mortgage deals and reintroducing them at higher costs in a bid to ensure stability.
It’s claimed that the government never briefed the BoE regarding the policy announcements made in the September mini budget. Had they done so, the BoE would have been able to advise on market reactions.
Since Jeremy Hunt stepped in as Chancellor and reversed many of Kwarteng’s tax cuts, mortgage rate increases have been stemmed, but rates are still higher now than they were before the Liz Truss Premiership.
Thankfully, there has been no outcry from the Bank of England to suggest the Autumn 2022 Statement may cause a crisis similar to what we saw in September 2022. It was expected, if austere.