Autumn Budget 2021: What it Means for Bricks and Mortar
Last Updated: 01-11-2021
Reading Time: 10 minutes
Amid much talk of 'levelling up' the economy, Wednesday's Autumn budget offered little news for the mortgage and property market.
However, there were a few 'red flags' posted, which we need to look out for.
Some may take effect right away, others in the months to come.
We know that the Stamp Duty holiday only ended in England last month. Plus, the introduction of the Mortgage Guarantee in April's budget is already in full swing. To that end, very few measures announced by Rishi Sunak this week affect the Bricks and Mortar industries.
Few measures will have a major direct impact on the housing market in the way that Stamp Duty relief did.
So, it's perhaps understandable that there's limited government help at this time. Rather, it seems they're content to allow the property market time to reset in its wake.
Key points impacting the property/mortgage markets from Autumn Budget 2021
In the forthcoming months, I expect to see a more accurate reflection of the state of the mortgage market unfold.
One such example: contractor-friendly lenders are once again willing to offer 95% LTV mortgages for contractors today. That's for professionals operating through their own limited company or using an Umbrella Company. Let's have more of that, please!
I covered this Budget's basic points in my immediate reaction on ContractorUK. Now I've had chance to soak in the information overnight, here's a detailed list of impactful measures announced by Rishi Sunak yesterday:
- Inflation likely to peak at 4%, which means interest rates likely to increase;
- No changes to the Mortgage Guarantee Scheme, which offer 5% deposit mortgages;
- No changes to Capital Gains Tax (at least for now!);
- Property prices are at a record high due to an imbalance of buyers and sellers;
- £5bn committed to remove unsafe cladding from high-risk buildings:
- this will be funded by a 4% property development tax on property developers with annual profits of £25m or more;
- £11.5bn allocated to help build up to 180,000 new affordable homes:
- 65% of this funding is set for homes outside London;
- £1.8bn fund to support the delivery of housing on brownfield sites across the UK;
- £3.9bn to decarbonise buildings:
- this includes £1.8bn to support tens of thousands of low-income households in their transition to net zero, while reducing their energy bills.
Inflation and Interest Rates
For property owners, landlords and investors, all eyes should now turn to next week's Bank of England meeting. Inflation has been on the rise throughout 2021, and the BoE will be under pressure to increase interest rates to battle this rising trend.
Chancellor Rishi Sunak reaffirmed the government's commitment to maintain inflation at a target of 2%. According to OBR, the economic and fiscal outlook indicates that inflation is likely to reach 4%.
You can lay money that a base rate rise is on the horizon sooner than later. Indeed, many lenders are already withdrawing their lowest-rate mortgages.
What does a raise in the base rate mean for borrowers?
An increase in the BoE base rate, will mean that lenders will follow suit, which ultimately increases the cost of borrowing for property buyers. Indeed, as I announced on Twitter, many lenders have already raised interest rates:
A #rise is just what we need, given the backdrop of a flatlining market…
— FreelancerFinancials (@contractorIFA) October 29, 2021
Inflation doesn't only effect interest rates. It forces lenders to adjust their lending models and criteria in regard to affordability.
Increased interest rates and inflation mean people have less disposable income. On that basis, lenders may potentially seek to reduce their income multiples when calculating how much they should lend.
Currently, lenders are offering income multiples up to 5 times annual income. That figure is something we should all keep our eyes on.
Mortgage Guarantee Scheme
This was only introduced in April 2021 and is expected to run until 31 December 2022. As far I can see, Sunak announced no changes to this.
I believe the scheme is likely to be extended in the future; it's a welcome addition for first time buyers and homeowners alike.
The Government Guarantee Scheme has acted as a significant catalyst for lenders in terms of bringing more 95% LTV products to market. But at the last count, their numbers were still down on pre-pandemic levels.
Capital Gains Tax (CGT)
There were all kinds of rumours about possible changes to capital gains tax. This included speculation of a rise, but there had also been suggestions the rate could be aligned more closely with income tax rates.
Some financial analysts were predicting that the current CGT rates would be scrapped to make way for everyone paying income tax rates on their gains. This move was proposed by the OTS in a report published in November 2020.
The OTS is an independent body that provides advice to the government on simplifying the UK tax system. Theoretically, it should make things easier for taxpayers…
…that's if the Government listens.
The Chancellor resisted making any major changes to the tax people pay when they sell assets such as a second home or shares. This came as a huge relief to higher rate tax payers. But I dare say the property sector won't mind, either.
CGT on residential property sales - the maths bit!
What the Chancellor did confirm is that, from Wednesday, people selling UK residential property will now have 60 days from the date of completion to report and pay their CGT bill. This is double the previous window of 30 days.
This window, in my opinion, is still not long enough!!
Still, the change applies to both UK and non-UK residents. For mixed-use properties, it will only apply to the residential element of the gain. And the capital gains tax-free allowance for the 2021-22 tax year remains at £12,300.
Higher or additional rate taxpayers currently pay 28% CGT on gains from residential property and 20% on gains from other chargeable assets.
For people who pay the basic income tax rate, the CGT tax is 18% on the gains from residential property and 10% on gains from chargeable assets.
Raising CGT typically affects wealthier people who own second homes, investment properties and assets. Many investors feel they have dodged a bullet this time round. However, many fear that a more significant overhaul of CGT could come later down the road.
Property prices at record highs, but we need more houses!
The imbalance of buyers and sellers has pushed property prices to record highs. Moreover, they're likely continue rising in 2022.
There are still over ten buyers for every one property listed: it's crazy!
The bottom line is that we need more homes to satisfy our ever-growing appetite for homeownership.
Sunak's plans to build on 1,500 hectares of brownfield sites is a start. But he mentioned little detail about the properties to be built, how, when or where. We need details to correctly appraise this announcement!
And should we all rejoice in the £11.5bn promise for 180,000 affordable homes? This was already communicated 12- months ago by Robert Jenrick, so hardly newsworthy this time around.
Plans to remove unsafe cladding was welcome news. Cladding is a major issue, which is affecting many people. Making further funds available to deal with the cladding crisis will help those people trapped in their homes.
Eventually, this scheme should help homeowners who are unable to sell to raise finance or get a mortgage. So, yes: I'm ecstatic about this announcement!
The government, year after year, consistently fails to meet housebuilding targets and demands. I just don't believe that a serious level of affordable homes will be built in the next decade or two. On this occasion, I do hope I'm wrong!!
Any questions about getting in before rates rise too high, just ask us. We're monitoring all lenders daily and can advise on your next move accordingly.
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.
Posted by John Yerou
on October 29th, 2021 23:02pm in