Autumn Budget 2021: No direct hit on contractor mortgages, but a few red flags hoisted
The advance release of many measures set out in Autumn Budget 2021 means there was little to surprise us, which after “an extraordinary 18 months,” as the chancellor put it yesterday, is far from the worst of outcomes, writes John Yerou, CEO of mortgage brokers Freelancer Financials.
The cost of living (mainly fuel and inflation), and business recovery/growth as we hopefully come out of covid took centre stage. And rightly so.
Regarding our speciality of mortgages, there were no immediate measures to upend or even change the home loans market. There were, however, a series of smaller announcements in the Budget that will play a part in the housing market over the coming months and years.
New Housing Stock/Affordable Housing
Primarily, there's the government's continued commitment to affordable housing.
The three key points to help the Tories realise their vision are:
- A multi-year housing settlement totalling nearly £24billion;
- £11.5bn to build up to the 180,000 affordable new homes (which is 20% larger than the previous programme), and;
- £1.8 bn (enough to bring 1,500 hectares of brownfield sites into use!) to meet their commitment to £10bn in new housing.
While these measures are welcome, the chancellor went into little detail about the spread or timescale of these projects. Nor, indeed, the locations.
However, with wider investment outside London, notably Liverpool, Manchester, the West Midlands and the West of England, our hope is that the new housing stock will match that investment's demographic.
New Levy on Property Developers
This year has seen the most radical shake-up to Affordable Housing Schemes since the government unveiled Help-to-Buy in 2013.
In the available schemes today, property developers play an integral part. So in yesterday’s Autumn Budget, it was a bit arresting to see the chancellor announce that property developers with profits over £25million will pay a 4% levy to “help create a £5bn fund to remove unsafe cladding.”
We are unsure how the government will collect that levy, or if developers will be able to offset any of it. But we can assume that many developers in the Affordable Housing Scheme will also fall into the >£25M profit bracket.
These developers having to find an extra 4% tax will (probably) impact their bottom line. Be aware, this could play a part in fees they charge -- including homebuyer fees in the Help-to-Buy/Shared Ownership schemes that they are currently undertaking.
Inflation and Banks’ Corporation Tax
The chancellor announced in the Budget that he had "written to the Governor of the Bank of England…to reaffirm their remit to achieve low and stable inflation."
His intention is to keep inflation to the 4% forecast over the next 12 months, and he specified that the Bank of England has "a good record" of doing so. Let's hope it’s not about to change!
Because a little alarmingly, having inflation at 4% will put pressure on the BoE to raise the base rate. This will potentially result in banks doing the same. Which ultimately means the cost of borrowing will likely go up.
Of course, this all comes at a time when many lenders have posted record low rates, and contractors trying to get their foot on the ladder – or up it – will want rates to stay where they are!
Yet furthermore, the banks may well be tempted into seeing a rise in mortgage rates as a quick way to stave off the increase in corporation tax which the chancellor announced, which will rise from 27% to 28%. Again, let's hope they don't!
The Shifting Forecast
Standing back from this speculation, there's fortunately nothing in Autumn Budget 2021 with a pressing, instant or adverse impact on the mortgage market. Some of the inflation effects do potentially hoist ‘red flags’ further down the line (so you might not only see them displayed on UK ships in the coming months!). As a result, contractors should not feel massively at sea or adrift if lenders launch a broadside by withdrawing the currently record low rates on mortgages without so much as a blast of the warning horn.