Can Autumn Budget 2024 build on housing market good vibes?

We've hit the end of September 2024, meaning that the Labour party's first budget in 15 years is a mere 30 days away.

Autumn Budget 2024: no crystal ball needed

But it doesn’t take a specialist mortgage broker like us to know what's already on the agenda for October 30th’s Autumn Budget 2024.

Rachel Reeves has forewarned everybody that, to clean up their inherited mess, this new Labour government is going have to get tough on spending, taxes, and welfare, writes John Yerou, CEO of Freelancer Financials.

Grim economic data saw BoE hold interest rates in September 2024

The most recent economic figures for the UK haven't helped the cause of any contractors hoping to avoid what prime minister Keir Starmer has warned will be a “painful” fiscal statement.

GDP has flatlined. Insolvencies are forecast (by Deloitte) to be higher. Inflation is proving sticky at 2.2%.

So it’s no surprise that, eleven days ago, the Bank of England held interest rates -- that’s the rate of borrowing -- at 5.0%.

All doom and gloom for homeowners, then? Not at all

Yes, lenders and homeowners alike want to see the base rate of borrowing drop.

But lenders have been bold with their pricing, working on slender margins. With all recent economic markers showing no change, at least the situation's not worsening.

Plus, Labour knows the danger of going in too hard or fast.

In recent months, a modicum of confidence has returned to the housing market. And, don't forget, housing was a key policy in the Labour 2024 election manifesto. They won't want to seem self-defeating at the very first hurdle.

So, what can we predict for the housing market in the lead-up to Autumn Budget 2024 and thereafter?

What the Bank of England's latest figures really mean

The big worry is that Reeves’ first budget could put a damper on recent good vibes in the mortgage market.

These are the recent highs of those housing market good vibes:

• Rate cuts are helping

Okay - so the base rate has remained at 5.0% this month (September 2024).

But that's still lower than the recent high of 5.25%, and last month's interest rate cut by the bank has helped. It's making mortgages more affordable, and lenders will want to maintain that air of confidence.

• The housing market is picking up

According to the latest Bank of England (BoE) figures: 

• July's mortgage approvals haven't been so high since September 2022;
• Individuals' mortgage debt has risen to the highest since November 2022;
• Year-on-year mortgage lending grew by 0.6%;

The above three data points, when combined, indicate more people are buying property, and lenders are more willing to lend.

• First-time property getting a boost

The combination of lower interest rates and higher loan-to-value mortgages is making it easier to get on the property ladder, with some new homeowners now even foregoing help from the Bank of Mum and Dad.

And the potential losers of Autumn Budget 2024, are…

We know Reeves’ Budget is likely to target both the middle class and the wealthier.

It looks odds-on that Labour will use Capital Gains Tax to raise funds. 

Even more pertinent for contractors (CGT tends to only become a key concern when closing a company) is the possibility of the government using Corporation Tax to bolster the Treasury’s coffers.

Interestingly, Labour’s 2024 election manifesto pledged to leave headline corporation tax alone. But it said nothing about the “Small Profits Rate.”

Such a move to increase CT wouldn't necessarily change mortgage lenders' attitudes to contractor affordability.

Yet, it might temper what contractors see as their disposable income thereafter.

The UK housing market is showing resilience

We know that Labour has a bold plan for building new homes.

Contractors and everybody else now must wait a while to see the benefits of the plan.

Not just because property-building takes time, but also because the house-building schedule of the previous Conservative government was abandoned long before July 5th’s general election.

Cause for housing market optimism

There's a good chance that the BoE staying strong on interest rates (by this month freezing the base rate) will bring inflation down.

Dips in inflation will give the bank’s Monetary Policy Committee enough confidence to reduce borrowing costs, which will eventually filter through to homeowners.

Positively, some pundits are already predicting reaching average mortgage rates ‘beginning with a three.’ I'd advise caution here, however.

The BoE simply isn't going to bring the base rate crashing down. 

Unsustainable

Plus, lenders can't operate on the slender margins they're operating on now indefinitely. It’s just not sustainable.

At present, lenders who we deal with for contractor mortgages are pretty much all competing for the scant business that’s available, because by and large homeowners are holding out for lower introductory rates.

As we see more housing market activity, lenders will go through a period of adjustment too.

More reasons to remain confident

It's in the government's interest to have a healthy housing market.

Like many limited company contractors we help with home loans, I will be hoping Reeves remembers that when she gets to her feet on October 30th in the House of Commons.

To the chancellor, I’d point out that more remortgaging and first-time buying means:

• more and more secure CIS jobs,
• less homeowner or property-buyer frustration (i.e. a happier electorate),
• more tax raised via Stamp Duty (SDLT).

And while we’re on the topic of the construction industry, be aware that we're still waiting to see how Help-to-Buy's replacement -- Freedom to Buy -- will pan out.

All eyes on October 30th…

A similar initiative, at Autumn Budget 2024, to boost the housing market may therefore feel a bit premature, especially with the good vibes continuing at present to play out.

In theory, what will make the government happy will make UK homeowners happy too. Let's see if the reality matches that theory in four or so weeks' time.