Spring Budget 2024: A mortgages wish-list that's good for today, yet more politically likely at Autumn Statement 2024

The mortgage and housing markets desperately need an injection of life. A burgeoning populace, abandoned new build targets, and fewer and fewer mortgage approvals have all taken their toll.

The question is, writes Freelancer Financials CEO John Yerou, will the chancellor sort any of this out at today’s Spring Budget 2024, or will he save his ‘big guns’ as pre-election sweeteners?

A Spring Budget (and its chancellor) held to ransom by the TBC general election 2024

Experts are hanging their hats on a November 2024 election. If they’re on the money, it means Jeremy Hunt will likely have one more ‘budget’ -- Autumn Statement 2024 -- before we go to the polls.

So, will he make his move today and give his policies time to take root? Or will he save the very big guns until October - even very early November (the typical AS month), given that he’s in danger of losing his seat, regardless of whether the Conservatives get over the line?

I’m leaning towards Hunt keeping his powder dry until just before we go to the polls, so I expect little of what the mortgage and housing markets need from him when he gets to his feet this afternoon.

Usually for ContractorUK, I put together what I think will change after a Budget.

This time, with the UK in recession, it feels more like a ‘wish-list’ than scrying the tea leaves. But, here goes nonetheless…

Chancellor, if the housing market matters, address Stamp Duty

In the current housing market, Stamp Duty Land Tax is one of the largest barriers to moving.

Couple that with moving costs, estimated to be around £14,000 (Which?, Oct 2022) and the tax burden at its highest rate for three generations, and it’s enough to deter many would-be home-movers from upping sticks.

Given the Conservatives’ penchant for homeownership, you’d hope Hunt would throw a lifeline to both homeowners and first-time buyers at this Spring Budget 2024.

Yes please to stamp duty reform (includes ‘localised SDLT’)

At present, first-time buyers can buy a home for up to £425,000 before they incur SDLT.

However, this is only a temporary measure. The chancellor could make this a permanent threshold, especially with some experts predicting a combined 17% rise in house prices between now and 2028.

Also, given the huge discrepancies in house prices and earnings across the UK, Hunt could introduce ‘localised’ Stamp Duty. Aligning the tax to regional house prices would help give first-time buyers a leg up, as well as stimulate existing homeowner movement.

Finally, the One Nation Caucus implored the chancellor to scrap Stamp Duty for mortgage-holders downsizing. As I said in last year’s pre-Spring Budget 2023 preview for contractors, this would help free up accommodation for larger families.

Indirectly, such a move could also allow parents to put the proceeds into their savings accounts. With so many first-time buyers relying on the ‘bank of mum and dad,’ that cash could potentially help their kids with their own homeownership dreams.

Hunt needs to forget 99% mortgages, they are a road to nowhere - just ask lenders

The government’s Help-to-Buy scheme ended last year, and first-time buyers need a replacement product.

One idea that Hunt has bandied about this year is 99% mortgages. It’s not gone down well. In a recent Mortgage Quest article, I looked at the pros and cons of 99% mortgages. Initially, the idea certainly divided industry experts. Some saw the benefits of such low-deposit borrowing. Others labelled the idea as a “policy-grabbing waste of space”.

Whatever the opinions of experts, I can tell you that lenders are not impressed.

Lenders look at all mortgages from one perspective: risk. With house prices so unstable, a borrower putting down only a 1% deposit is inviting negative equity from the outset.

If we did see 99%-LTV mortgages, lenders would increase their interest rates to mitigate potential risk. I’d estimate a rate of 6% -- as the minimum – you would see, should lenders take such lending on board.

The chancellor should go back to the drawing board or reintroduce Help-to-Buy.

First-time buyers deserve better, and banks could build on previous Help-to-Buy mortgages to offer innovative and fit-for-purpose lending.

Levelling up not going down: where is affordable housing?

Everyone in the mortgage/property industry, including me, are soul-destroyed at the number of failed promises to build more affordable homes.

Last year, we saw some 234,400 new homes in the UK, similar to 2022. This is way off the Conservatives’ 300,000 per annum they promised in their 2019 manifesto.

One problem particular to the current government is that new homes split its members. Half of Conservatives want new houses to ease their constituents’ complaints (and appease private landlords). The other half of Tory MPs don’t want developments sullying their picturesque greenfield constituencies!

So, despite developers’ calls for easing of planning regulations, the support they need to meet housing targets may not be as forthcoming as one would hope.

Interest rates

We’ve seen considerable reductions in interest rates since they spiked following Liz Truss’ mini-budget in September 2022. But, after months of reductions, we’re beginning to see some lenders increase their rates slightly.

Some lenders went really hard to capture new business as the Bank of England began to get on top of inflation. But inflation is proving sticky, which has helped nudge up the ‘swap rates’, upon which most lenders were basing their lowest rates.

Inflation should come down once the energy giants reduce their lending caps in April. But I don’t see lenders reducing their rates much below where they are today.

Around 4% (5-year fixed rate deals) and 4½% (2-year fixed) is as good as you’ll get right now.

I expect those sorts of rates to be around the same at the fourth quarter of 2024.

That said, if the BoE does go hard at bringing its base rate down, mortgage interest rates could follow. This would also help alleviate the burdens of the cost-of-living and housing crises.

But I don’t see Hunt moving on that today. More likely, we’ll be stuck with the current base rate until summer, so any movement will be towards the end of the year.

Inheritance Tax? It's outdated

I’m not the only adviser to contractors to flag up IHT as an HMRC levy which the chancellor should address at today’s Spring Budget 2024.

The 40% levy on IHT hasn’t changed since April 2009. The threshold has remained at £325,000, but, as many experts have pointed out, the increase in house prices over the last 15 years has pushed more and more homeowners into that bracket.

I’d love to see Hunt take action on IHT. But it wouldn’t have mass appeal.

Only 27,000 people in the UK pay inheritance tax. Nonetheless, outright abolishing IHT would put more cash in the pockets of bequeathers’ beneficiaries. This could really help their grandchildren find the deposits they need to get onto the property ladder.

Pension drawdown age possibilities – an innovative idea (not mine)

Finally, I saw a great idea on the web last week concerning pensions, but I can’t for the life of me remember who said it or where!

So with this acknowledgement that this isn’t my light-bulb moment, I’d like to share it.

Currently, you have to wait until you’re age 55 before you can draw down your pension tax-free. That age might have been an appropriate measure once. But people, especially those without familial help, aren’t managing to buy a home to the value of the UK average home until their late 30s.

By then, these 30-somethings do at least have a lump sum in their pension account. If they were drawing some of their pension down for a house deposit, they should be able to do so tax-free.

Final thought, as you, I, and the housing/mortgage markets go off to hang on Hunt’s every word...

To reiterate, these last two (pension innovation and axing IHT) are definitely more wishes and hopes, than prospects and probabilities. And, you never know: Hunt may surprise us with windfalls in a few hours. But, should any of the above come to pass, the likelihood is that it’ll be later this year.