Autumn Statement to have knock-on effect on housing

Lawrence Bowles

All eyes were on Jeremy Hunt last Thursday as we anticipated which taxes he would hike and what spending he would cut to fill the “fiscal black hole”.

Given what a vital role housing plays in all our lives, it was perhaps a little surprising how small a role it played in the Autumn Statement. However, while there were only a few announcements directly impacting housing, plenty more will have second-order effects on the market.

Stamp duty cuts reversed

Having said the stamp duty changes introduced in the September fiscal event would remain in place, now the chancellor has announced they will revert to their previous levels in April 2025.

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That means a first-time buyer who purchases a property after that date could pay up to £11,250 more in tax. A home mover could pay up to £2,500 more.

This announcement will not have a major impact in the short term. The increased costs of higher mortgage rates offset any stamp duty saving in all but the most extreme cases.

However, one must never underestimate time-limited tax breaks’ ability to distort the market. As March 31 2025 approaches, we can expect to see sales activity accelerate to take advantage of any savings.

A cynic might point out that this reversion to higher stamp duty rates comes due after the next general election. Do not be surprised if this issue comes back to the foreground as parties publish their manifestos.

We all benefit from cheaper borrowing

One of the chancellor’s main objectives last Thursday was to control the UK’s borrowing costs. At first glance, it looks like he has achieved that: 30-year gilt rates fell from 4.96 per cent on September 27, right after the “mini” Budget, to 3.35 per cent on the day of the Autumn Statement.

That has knock-on impacts for anyone taking out or renewing a mortgage. The best rates available for two-year fixed mortgages have already fallen to 5 per cent from their peak above 6 per cent in October.

The days when one could fix their mortgage debt for five years at rates below 1 per cent are long gone. But the days of mortgage rates above 5 per cent may be similarly short-lived.

That will help to ease affordability pressure at the point of purchase, especially once the Bank of England considers it has done enough to tame the beast of inflation. Lower rates will also ease pressure for private renters, as previously frustrated first-time buyers leave the rented sector for home ownership.

But a higher tax burden may deter activity

Freezing the basic and higher income tax thresholds will cut into households’ post-tax incomes, limiting how much they have left over to save for a deposit or to fund their next move.

However, the impact of the freeze is unlikely to have a substantial impact for home buyers, as crucial loan-to-income ratios are calculated using pre-tax income.

And while the vast majority of us will never earn enough to hit the additional income tax threshold, even at its reduced level of £125,140, this and the reduced relief on dividend income may cool the demand for second homes slightly.