Don’t be another salesperson ‘flogging your client a deal’ Adviser knowledge is key as rates rapidly change, expert suggests

The wait, and endless leaks, are over and we now know the content of the budget, I’ll even resist any Halloween inspired puns… For our thoughts on this and other key themes in the mortgage market such as – why mortgages rates are going up | issues we are experiencing with property valuations | Impact on money markets – we are going to dive straight into those topics this month as there is a lot to get our fangs into:

Market Update

Budget

Matt Coulson and myself did a detailed podcast on the day of the Budget, which you can listen to HERE, but for bullet point takeaways relevant to the property/mortgage world it was worth a summary:

• Stamp Duty on 2nd Homes up to 5%, now in effect
  • I think this is a mis-step. At a time of soaring rental payments this is likely to decrease the supply of new rental property further and exacerbate this issue. The rental market needs stimulus not deterrent
• £5 Billion of Funding in the housing sector
  • £3.1B on Affordable Housing
  • £3B in guarantees to small builders
  • £1B to speed up the fixing of dangerous cladding on flats
  • More funding for brownfield regeneration
    • very scant detail on how this will actually work as no mention of changes to planning rules which is more of an issue than the funding
• Right To Buy Discounts ‘reduced’
  • Vague as to how this will work and when, and how the receipts of these sales will be used by Local Authorities to ‘reinvest into their existing stock and new supply’, so more to follow I am sure
• Capital Gains Tax increases (but remains free on your residential property)
  • Basic rate taxpayers currently face a 10% CGT rate, or 18% on residential property and carried interest. Higher earners pay 20% on any amount above the basic tax rate and 24% on residential property and carried interest.
• Inheritance Tax frozen at £325k for assets, and £500k where a Residential Property is part of the estate
  • However, Pension funds will now form part of the estate which will drag many more families into paying this tax once implemented
• Abolition of Non-Dom status
  • While not a big one, a 200 year old part of our tax system going is worth a mention especially as many, many high value property transactions have gone to these individuals each year
• Change to definition of ‘debt’
  • The Govt has stripped out investment projects to ‘day to day’ spending, the latter only counting as debt, with the former largely being under the new National Wealth Fund
  • While this is a good idea I support, it is at the end of the day Accountancy jiggery pokery
  • It also opens the door to aprox £15.7B of extra borrowing the Govt would not have been able to make before under the previous fiscal rules (largely set by Gordon Brown in 1997)

It was a very long and detailed budget which many other people will comment on in more detail but the major points I took away were:

• Businesses are taking the hit, as £25b of the extra £40b looking to be raised come from Employers
• Can they pull off the magic trick of debt not being debt and use this money to stimulate growth?
• Clearly they want to get building, which is great, but more detail is needed
• They are going big on Tech/Green/Science investments, which is good, as it is a strength of the UK, but just didn’t seem ambitious enough to move the needle

My gut reaction was – this means more of the same – I hope I am wrong as it all hinges on the second point above working. As ever, these numbers are all based on forecasts and assumptions. What if wealthy folk continue to leave the UK on mass? What if businesses either stop hiring or look to fill roles overseas? These are very real risks but that is the gamble this Govt is taking. Only time will tell.

Mortgage Rates On The Up

No doubt the result of the uncertainty, and in some cases, extreme anxiety in the lead up to the Budget, money markets have gone up in recent weeks. That has led to many lenders to pull market leading fixed rate products and replace them with higher priced products. If anyone was waiting for rates to drop, that ship has sailed and at least for the moment, we are seeing fixed rate mortgage products creep up still. It is still a bit too early to tell if the budget will impact this trend, but I suspect we are broadly where we are on pricing from now until the new year. A note of caution though that due to the contents of the budget, the Bank of England may not cut rates as much as currently predicted in the coming years, if that is the case, pricing is very unlikely to go any lower for the foreseeable future.

Property Valuations ‘all over the place’

We have noticed some very strange valuations of property in recent weeks. This is largely when an indexed valuation is applied, so this most commonly comes up on a re-mortgage but there are still a lot of ‘Desktop’ valuations that happen for purchases as well. The curiosity here is that some come back low, but others high… there doesn’t seem to be any logic to this. On a purchase, that obviously causes issues but equally on a remortgage, this can positively/negatively affect the product on offer. This is always a tricky area as we, and the lender, can’t have any influence on this process, so it can cause a number of logistical problems. All we can advise is applying as early as possible so if this issue does surface, we have ample time to fix by either working with the lender/surveyor and applying elsewhere if needed.

Money Market & Mortgage Rates