Here’s where contractors on a mortgage need Spring Budget 2023 to step in

Following what we now know was a disastrous mini-Budget, and the corrective Autumn Statement, the pressure is on for Jeremy Hunt to today deliver a fair and balanced Spring Budget 2023.

Taking place today following prime minister’s questions in the House of Commons, the announcements of chancellor Jeremy Hunt will likely have implications for your own house, or the next mortgage you’ll need to stay in your house or move, writes John Yerou of Freelancer Financials.

Just as Mr Hunt will set out the government’s planned spending and objectives, I will set out here what the contractor mortgage space – and those occupying in it as customers – need from him today.

1. Offer help to homeowners looking to downsize

The mortgage industry has been calling on the chancellor to revamp Stamp Duty Land tax, particularly to help those looking to downsize.

There’s a ticking time bomb for savvy and unsuspecting homeowners alike, who are coming to the end of their fixed-rate deals. Should the new rate be vastly higher than their existing rate, it potentially means them having to downsize to meet any new higher remortgage cost.

A reduced or waived stamp duty for anyone looking to downsize due to this jump could help ease some of the pressure they are currently experiencing.

Money Saving Expert’s Martin Lewis has already called for support for ‘mortgage prisoners;’ and we believe those needing to downsize should likewise have a helping hand.

2. Build more homes

There is still a shortage of affordable homes and rental properties throughout the UK, especially in the South East of England.

To boost the housing market, Mr Hunt could ease planning regulations to make it easier for new homes to be built.

But it needs to be part of a joined-up approach. Easing planning regulations, then identifying potential sites and following through by establishing housing agencies to drive an affordable housing scheme forward. That’s the minimum requirement to take ‘building more homes’ beyond a soundbite.

Hunt could then go further still. A tax incentive for investors and developers would encourage external assistance. The knock-on effect could (theoretically) stabilise the property market with more options for first-time buyers, who have remarkably few options in the current climate, whether they are a contractor or not.

We are aware that the Conservatives have long been known as the party of home ownership. Yet, in recent years, they have hardly lived up to that reputation. And with the Tories so far behind Labour in the opinion polls, it’s unfortunately very possible that the chancellor could be saving such an announcement for the more immediate run-up to the general election.

3. Go permanent with the Mortgage Guarantee scheme, restart Help-to-Buy

In December 2022, the government extended the mortgage guarantee scheme by a further 12 months, with the effect that it will run until the end of December 2023. This extension will help people with 5% deposits access the property ladder.

But it’s not enough by a long shot! The scheme needs to be in place for several years—or better yet, indefinitely—to have any major impact.

The Help to Buy scheme closed for new applications in October, with its housebuilder completion deadline pegged for March 17th 2023. The legal completion deadline is March 31st.

But many are still calling for  Help to Buy to be restarted, too. If the chancellor doesn’t restart Help-to-Buy today, then it’s another missed opportunity for incentivising first-time buyers who’ve saved only 5% deposit to access the property ladder.

4. Modernise how contractors save for a deposit via Lifetime ISAs

Spring Budget should reform the rules and outdated thresholds linked to Lifetime ISAs (LISAs), which are no longer fit for purpose.

Lifetime ISAs allow people to save up to £4,000 a year, with the bonus of the government adding 25%, taking the total savings to £5,000.

So that savers retain the government bonus, these savings must be put towards either retirement or the purchase of a first home not exceeding a cost of £450,000.

You can probably see the disconnect. Given the still upward trend of house prices (defying the experts who said the housing market would collapse), a 5% deposit on a £400,000 home is £20,000. That means it would take a full five years to save a deposit, and that’s assuming house prices stagnated over that period!

As such, you have to question how fit for purpose LISAs are. The consensus of the mortgage industry is that:

• Early withdrawal fees -- currently a whopping 25% -- that effectively wipe out the government contribution, need reducing;
• The LISA property threshold needs to be a fluid limit. First, bring it in-line with the current market (the 450k ceiling has not changed since its launch 2017), and then move up or down in line with average house prices thereafter.

5. Provide props for struggling mortgage borrowers

The elephant in the room is homeowners falling off fixed sub-2% interest rate deals they took out five (or even two) years ago, and now face suffering interest rates in excess of 4 to 4½% -- just to remortgage.

There is a real possibility that homeowners are going to struggle in the face of the many factors driving these increased mortgage rates.

Towards the end of last year, the Financial Conduct Authority and others implored the Treasury to show ‘flexibility and forbearance’ towards homeowners who have little choice but to accept this drastic jump in their outgoings.

Everyone in our industry hopes the Treasury’s boss shows common sense today and offers a cushion to those falling off low fixed rates, painfully finding out the time of ‘cheap money’ has come to an end, and that they must adjust to the ‘new normal.’

Budget 2023's backdrop: interest rates possibly maxing out, inflation, and our predictions

Mortgage rates in the US continue their upward trajectory with the Federal Reserve signalling a more aggressive stance on monetary policy.

This movement by the Fed implies that inflation might actually prove a stickier wicket than some policymakers anticipated. And we all know that what often happens ‘Across The Pond’ typically follows in the UK. 

Here last month, the decision by the Bank of England to raise interest rates to 4% was celebrated by many as the BoE drawing a line in the sand, sort of. Many anticipated that the bank’s Monetary Policy Committee might feel it need not increase the UK base rate further.

While there are some members of the MPC who clearly take this view, others have warned that the bank rate will need to be increased again. As stated by us previously, the financial markets’ expectations are that the BoE may notch it up to 4.5%. This may (hopefully) be a result of two 0.25% increases, rather than a single .50% increase. Either way, contractors should have some certainty soon, as the bank is due to announce any moves in the base rate on March 23rd.

Remember other rates though too. Since the start of 2023, mortgage interest rates have continued to fall even with interest rates going in the opposite direction.

That said, the best rates we’re seeing aren’t for everyone. Lenders are offering sub-four per cent rates to borrowers with the biggest deposits/equity levels.

One of the key indicators of where fixed mortgage rates are heading is Swap rates. For a while, these have fallen, which is why we’ve seen a glut of 4%-ish fixed rate deals return to the market. But given that Swaps have begun to inch back up in recent days, it’s clear that mortgage rates are not going to continue on a downward curve. In fact, we’ve already started seeing them notch up across a host of lenders.

With mortgage interest rates, don’t kid yourself

Right now, today even -- on Spring Budget day, March 15th 2023, many borrowers are under the misapprehension that future rates are going to fall to the levels we saw in late 2021.

Many aspiring home-buyers are therefore delaying their house-purchasing plans until rates drop further. Given the rise in Swaps and expectations that the BoE base rate will rise again in the near future, delaying is maybe not the best tactic (depending on your individual circumstances).

It’s important to understand that we’ve a reached new norm, and that we’re unlikely to see mortgage rates drop to sub-3 % any time in the foreseeable future. Currently, the sub-4% rates that lenders introduced a month ago are disappearing just as quickly.

Finally, my message to chancellor Hunt in these minutes before he gets to his feet…

Whatever is contained in Budget 2023 today, we sincerely hope the chancellor agrees with us on the following even if he can’t grant our fives wishes above. And that’s this -- we must achieve one thing: stability. Of course, with so many external factors rocking the boat, I’m afraid that might be a forlorn hope. As safe as houses? If only…

Find out more about contractor mortgages or get in touch with Freelancer Financials about your mortgage here.