Following the Chancellors March Budget 2023 update, at Simmonds Mortgage Services we analyse how the announcements made today might impact property purchases and the mortgage market.
The housing market was noticeable by its absence from Jeremy Hunt’s first Spring Budget. Housing supply continues to be a major issue in the UK but there were no additional incentives or schemes to encourage house builders and developers to build more new affordable homes.
The lack of support for first time buyers struggling to get onto the property ladder coupled with tax disincentives such as the reduction in CGT allowance for private landlords means finding suitable affordable housing is problematic for many people.
What changed in the March Budget 2023?
The Government announced cost-of-living measures designed to alleviate some of the ongoing pressures:
- The Energy Price Guarantee, which means that the average households will pay no more than £2,500 for its energy, will remain for the next 3 months to 30 June 2023. This saves the average family around £160.
- 4 million pre-paid energy meter households currently pay an energy premium. Pre-paid meter rates will be brought into line with direct debit customer rates.
- Fuel duty is frozen for 2023/24 which will save the average driver £100 over the next 12 months.
All in all, there wasn’t very much that’s likely to boost buyer confidence when it comes to moving home. Property industry experts were hoping for a loosening of planning regulations, more support for sustainable homes, Lifetime ISA and Stamp Duty reform. Some may even have been hoping for a reversal of the 2016 decision to treat financing costs for buy-to-let properties as non-tax deductible to give the sector a much-needed boost.
There was some good news, however. The Office for Budget Responsibility (OBR) predicts that inflation, currently running at 10.1% will reduce to around 2.9% by the end of 2023. This means that the cost of everyday items won’t rise so fast, which may leave more money for saving a deposit or making mortgage payments. This, when taken with the latest estimates for 2023 on house prices, could enable some first-time buyers to enter the market later this year.
House price predictions
With the lack of ready buyers and house prices still unaffordable for many, especially in London and the South East, many banks and building societies expect house prices to reduce by up to 8-12% in 2023. This is probably the best news for first-time buyers who aren’t likely to have been cheered up by the March Budget 2023.
No change to Lifetime ISAs
The Lifetime ISA (LISA) product which encourages saving for a deposit in a tax-efficient way continues to be a useful vehicle for first-time buyers looking to own their own home. Those aged 18-40 can open a LISA and save up to £4,000 a year which is topped up by an additional 25% bonus by the Government, giving a maximum yearly saving of £5,000. However, there are some criteria to meet for using your savings to buy a property:
- the property must cost £450,000 or less
- the first payment into the LISA must be made before you turn 40
- you buy the property at least 12 months after you make your first payment into the Lifetime ISA
- you use a conveyancer or solicitor to act for you in the purchase
- you are buying with a mortgage
With the high cost of property in some parts of the country, the limit on property value could be problematic for some LISA savers, but the Government have not taken the opportunity to address this additional barrier to first-time home ownership in this Budget. Withdrawing the savings for purposes other than property purchase before the age of 60% incurs a 25% withdrawal charge, effectively clawing back the Government bonus.
Help for first-time buyers
The Help To Buy scheme which has been available to first-time buyers since 2013 has now ended. This leaves Shared Ownership as the only other Government approved scheme for part-owing a property, enabling first-time buyers to get on the property ladder when they don’t have a sufficiently high income to get the multiples required for a mortgage.
Some professionals in the property market were hoping that the Government would distribute some of the additional £30bn from lower energy costs to the housing sector, but that wasn’t to be this time.
Impact on mortgage interest rates
Mortgage interest rates have been falling from their peak of around 6% just after the September mini-budget to around 4% for two-year fixed deals. Further reductions on fixed rate deals are expected despite the Bank Of England increasing the base rate again at their February 2023 meeting but we are unlikely to see the very low rates of 2021 again anytime soon.
However, there could be some good news on the horizon as many financial experts predict that interest rates could be held when the BoE has its next meeting in April following the collapse of Silicon Valley Bank which led to swap rates falling. This reduction could feed into a faster reduction in base interest rates with a subsequent impact on mortgage rates.
Finding the right mortgage for you
With mortgage rates levelling off or even dropping further over the next few months, despite the challenging economic picture, now could be a good time to re-mortgage or invest in your first property.
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