The autumn statement in brief

In his first Autumn Statement, Jeremy Hunt announced a package of spending cuts and tax rises. But what does this mean for the housing market?

Published under Market update and Research — Nov 2022
The autumn statement in brief

Financial markets had their ears peeled for this Autumn statement. After the mini-budget unsettled markets just under two months ago, we saw a spike in borrowing costs for consumers and the government alike. While most borrowing costs have come back down, the fact remains that there’s still a large £60bn sized hole for the new PM and Chancellor to shore up.

Since the latest Bank of England (BoE) meeting where interest rates were raised to 3% and their predictions of a recession were reinforced, inflation has crept up further. Data out this week showed that CPI hit 11.1% in October, the highest level since 1982.

Many of the announcements today from the Budget are aimed at addressing the two main challenges facing the country; the cost of living crisis caused by rampant inflation and the threat of a contraction in economic growth – the former exacerbating the latter. It’ll take some careful balancing to tackle both these issues at the same time and the government has chosen to use both its levers; tax increases and spending cuts with almost equal weighting.

The key Autumn Statement announcements included:

Taxes

Spending

What does this mean for the housing market?

One of the key messages from the Autumn Statement is that the Chancellor reaffirmed the alignment between the Bank of England and the government about their commitment to tackling inflation, and this bodes well for interest rates.  The Chancellor’s statement was relatively well received by the 10-year swap market, a key driver of mortgage pricing. At the time of writing rates have come down fractionally compared to the previous day. While the Bank of England are expected to further raise the base rate at their next meeting in December, it remains unlikely that mortgage rates will rise much, if at all, which is good news for the housing market.

 

While little was directly targeted at the housing market, today’s announcements provide more clarity for households about their finances and the economic outlook.  That said, many households will be paying more tax and high inflation will leave them with less money leftover at the end of the month.  This will put pressure on affordability which is likely to persist until inflationary pressures begin to recede in the second half of 2023. Landlords who are planning to sell up will likely be hardest hit from today’s announcement.  From April 2023 the average higher-rate taxpaying landlord will see their capital gains tax bill rise from £21,260 to £23,870 from April 2024 after making a gain of over £88k.  Given the scale of gains made by landlords over a 10-year period, the effective tax hike will be unwelcomed, but is unlikely to change longer-term behaviour.

Alongside the Chancellor’s statement, the Office for Budget Responsibility (OBR) released their own forecasts, painting a slightly rosier picture than the Bank of England did back in August.  They are predicting more economic growth in both 2023 and 2024. However, they’re equally as gloomy about the prospects for the housing market as they were at the start of the pandemic and are forecasting house prices to fall 9.0% between Q4 2022 and Q3 2024.  This is mostly on the back of higher interest rates where they’ve assumed the average borrower will be paying a rate of 5.0% by Q3 2024.  They also think fewer people will move, with 1.02m homes changing hands in the 2023/24 financial year which will put transactions back to a similar level as in 2020.

Whether the OBR’s house price forecasts prove to be correct will probably be determined by what happens to the path of interest and subsequently mortgage rates. The OBR admit ‘there is significant uncertainty over this forecast’ and should mortgage rates for the average borrower dip below the 5.0% mark, it will markedly lessen the possibility of house price falls next year.

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Aneisha Beveridge

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