Top 10 Mortgage Strategies Stories: October 28th to November 1st

Mortgages

November 1, 2024

This week's Top 10 Stories in Mortgage Strategies

This week's Autumn Budget headlines feature big changes, from a reduction in the Right to Buy discount to a 5% increase in stamp duty on second homes from 31 October. See all the details below.

Right-to-buy discounts fall and social rents rise

In the Autumn Budget 2024, Finance Minister Rachel Reeves announced cuts to the right-to-buy discount, which allows local authorities to keep proceeds from home sales to be reinvested in social housing. The Government will invest £500 million to build 5,000 new council homes and will consult on raising council rents to provide financial stability for housing providers. Critics, including Together's Ryan Etchells, argue that these changes could lock long-term tenants out of home ownership and make it harder for them to afford council housing.

Stamp duty on second homes will rise to 5% from tomorrow.

Finance Minister Rachel Reeves has announced that the stamp duty surcharge on holiday homes and investment properties will increase from 3% to 5% with immediate effect. The changes aim to generate revenue and support over 130,000 more first-time home transactions over the next five years. Critics of the mortgage industry expressed disappointment, saying rising costs could deter second-home buyers and investors. Experts warned that such measures could put further strain on the private rental sector, which is already facing a shortage of vacant housing.

OBR raises forecasts for mortgage rates and house prices

The Office for Budget Responsibility (OBR) has raised its outlook for mortgage rates and house prices in its latest Economic and Fiscal Outlook. The report predicts that average home loan interest rates will peak at 4.5% by 2027, up from 3.7% in 2024, due to expected bank rate increases. House price growth is expected to decline slightly from 1.7% in 2024 to 1.1% in 2025, averaging 2.5% by 2030. The OBR expects property transactions to rise from 275,000 to 350,000 per quarter over five years, and housing starts to rise from 100,000 to 200,000. 160,000 people by 2029.

Property exempt from Reeves CGT price increases

In the recent Budget announcement, Treasurer Reeves confirmed increases to Capital Gains Tax (CGT), with the lower rate increasing from 10% to 18% and the higher rate increasing from 20% to 24%. However, interest rates for residential real estate remain the same at 18% and 24%. Industry leaders welcomed the decision, but feared the increase in CGT would make it harder for landlords to maintain their portfolios and worsen rental shortages. Nevertheless, this relief is likely to be overshadowed by the impact of a 2% increase in stamp duty on buy-to-sale properties, creating further challenges for landlords.

If the changes go ahead, 93% of homes will be subject to stamp duty.

According to research by Leeds Building Society, 93% of properties sold in the UK could be subject to stamp duty if the current stamp duty threshold is not extended in the next budget. The tax-free threshold for home buyers will return from £250,000 to £125,000, while the tax-free threshold for first-time buyers will drop from £425,000 to £300,000. The changes could have a big impact on buyers, particularly in areas like Yorkshire where affected properties could rise from 49% to 86%. Leeds City has highlighted the need for a comprehensive housing strategy to support affordability and home ownership.

CCTV punch held at housing committee

MP Mike Amesbury, who is under police investigation over recent altercations, has been appointed as an independent member of the Housing, Communities and Local Government Committee. His appointment comes after Labor withdrew its whip after CCTV footage showed him punching another man during a fight in his Cheshire constituency. The country has built about 1 million homes in the past five years and the committee's focus will be scrutinizing the government's target of building 1.5 million homes over the next five years.

Best rates are now on par with before the truss budget

Research by L&C Mortgages reveals that current mortgage rates are back to or below levels seen before the September 2022 mini-budget, which triggered the interest rate spike. The minimum average two-year fixed rate for homebuyers is now 4.13%, more than two percentage points lower than the October 2022 peak of 6.16%. However, the interest rate for buyers with a 10% down payment remains slightly higher at 5.06% compared to 4.57. Experts say the market is stabilizing and providing more certainty for borrowers.

Landlords are not considered “workers” Budget tax shield: Prime Minister

Chancellor Keir Starmer has expressed concern for landlords, saying they do not qualify as “working people”, which could foreshadow tax increases in the next budget. The government has promised to protect working individuals from higher taxes, but its definition excludes those who derive income from property. The National Residential Landlord Association argues that many landlords are employed or self-employed and rely on rental income. The proposed tax changes could place additional burdens on landlords, who already face significant costs to upgrade their properties and regulatory challenges in a tight rental market.

The government has given no indication of extending FTB stamp duty.

In the recent Budget announcement, the Chancellor confirmed that there will be no extension to the first-time buyer (FTB) stamp duty threshold, which is due to return from £425,000 to £300,000 in March. Existing home buyers face an increase in stamp duty from £250,000 to £125,000, but FTBs are still exempt under the higher threshold. The decision has drawn criticism, with industry experts warning it could hamper home-buying activity and worsen housing market volatility. Concerns were raised that the deal could be delayed as buyers scrambled to complete purchases by a March deadline.

Goldman Sachs raises forecast for bank interest rate, expected to reach 2.75% by November 2025

Goldman Sachs has revised upward its forecast for the Bank of England's benchmark interest rate, now forecasting it to reach 2.75% by November 2025, down from its previous forecast of 3%. The change is based on falling inflation, which fell to 1.7% in September, and expectations for a series of interest rate cuts. Money markets indicate that interest rates are likely to be cut from 5% to 4.75% at the next meeting on November 7th. Goldman analysts believe that the UK's economic situation supports a long-term downward trend in interest rates.