Chris Sykes – Technical Director & Senior Mortgage Consultant
Chris has a deep knowledge of the mortgage and housing market. His expert views are frequently mentioned in national press including the Financial Times, the Guardian, the Times, and a number of key trade publications.
Established in 1999, Private Finance is an award-winning, independent, whole-of-market mortgage broker, offering expert advice on the entire range of mortgage products available in the UK. They specialise in a broad range of mortgage lending, from more straightforward mainstream mortgages to high-value complex and specialist mortgages.
Spring Budget 2024 Reviewed
As the Spring Budget unfolded, Chancellor Jeremy Hunt delivered several significant announcements affecting incomes, and the property and mortgage markets, including some anticipated changes and a few surprises. Here’s my rundown of the key changes, what might happen next and a missed opportunity to right a wrong.
1. Changes to National Insurance Contributions (NIC)
Following the Autumn Statement, an additional cut was made to National Insurance, effective April 6th, 2024. Class 1 employed NIC is being reduced from 10% to 8% and Class 4 NIC from 8% to 6%. This reduction offers a slight boost to mortgage affordability. Although not groundbreaking, this move could provide borrowers with more flexibility to maximise borrowing amounts due to increased net income.
2. Capital Gains Tax (CGT)
The reduction in the higher rate of Capital Gains Tax on property from 28% to 24% might encourage investors on the fence to sell their properties, increasing stock available for homebuyers and investors. Although on its own it not a huge incentive to sell, it might be enough to persuade owners who were already considering getting out of the market to jump.
3. Abolishment of Multiple Dwellings Relief (MDR)
MDR previously provided a lower rate of Stamp Duty where two or more dwellings were acquired under a single transaction and, in some cases, this has lowered purchasers’ Stamp duty land tax (SDLT) liabilities by many thousands of pounds. In a few transactions in which we’ve been involved, MDR saved the purchaser six figures. The change, effective from June 2024, may pose challenges for investors, urging strategic adaptation. However, transactions already entered into contracts prior to March 6th can still proceed on MDR terms providing there is no variation to the contract after that date. The rule that allows Stamp duty land tax (SDLT) on the purchase of six dwellings or more as part of a single transaction to be assessed using the non residential property rates of SDLT is unaffected
4. Abolishment of Furnished Holiday Lets (FHL) Regime
The Chancellor announced the FHL regime will be abolished, effective from April 6th, 2025. In recent years, many landlords have been converting longterm rentals into holiday lets to benefit from higher yields. A less tax efficient environment, in line with the taxation of incomes from long term lets, could discourage this behaviour, and therefore support local housing availability by reversing this process and restoring long-term rentals back into the market. According to The Times the number of holiday lets has risen from 8800 in 2017 to more than 89000 last year. The growth of short term FHL has presented communities in some tourist areas and coastal towns with major problems, with locals and seasonal workers struggling to find homes to rent long term. Others say that increasing holiday lets has brought more tourism and growth to their towns, breathing new life into struggling local economies. Will the abolition of the FHL regime have a significant impact either way? I think it’s more likely that landlords will switch their holiday let operations to a company structure rather than a personal one rather than exit a sector which has the potential to deliver higher yields
5. Lack of Support for First-Time Buyers (FTBs)
The Budget fell short of directly supporting first-time buyers. We had hoped that the temporary thresholds for first-time buyers, in place until March 2025, would be made permanent. Furthermore, enhancements to other first-time buyer support, such as innovations in Lifetime ISA (LISA) and other deposit support schemes, would have been welcomed. I’m with Martin Lewis in believing that the maximum purchase price you can use LISA funds towards should be reviewed and aligned with house price movements. The proceeds of LISAs can currently only be used to purchase homes up to £450,000 without penalty and that figure was set in 2017 when LISAs were launched. A £450,000 home then would cost around £607,500 now and FTB’s wishing to utilise their LISA funds to purchase a property above the £450,000 threshold will be charged a 25% withdrawal penalty, which actually means the Government take back more than the bonus they put in (plus growth). It would be fairer to all LISA investors, but especially those looking to purchase at above £450,000, if the withdrawal penalty was reduced to 20% so that only the bonus and its growth had to be given back.
Overall, while the Spring Budget introduced some positive changes, it highlighted the need for more robust support measures for first-time buyers and ongoing attention to maintain stability in the mortgage and property markets. The mortgage market has experienced significant shifts and challenges in the last few years, amidst high inflation and tightening monetary policy. However, there are encouraging signs emerging on the horizon.
With spring in sight, the property market anticipates a bustling season ahead. Lower mortgage rates have made financing more accessible for homeowners, while increased supply expands options for buyers, setting the stage for an active market. SONIA (Sterling Overnight Index Average) Swap rates, a variable impacting on fixed-rate mortgage pricing, have been creeping up recently and we will be monitoring further activity and its impact on mortgage rates post-Budget.