Prime Minister Liz Truss has outlined the new government plan for growth what do the changes mean for the mortgage market and property sector?

The main changes announced were as follows:

  • Stamp Duty threshold raised to £250,000 or £425,000 for first-time buyers
  • Corporation tax rise cancelled, keeping it at 19%
  • Basic rate of income tax cut to 19% in April 2023
  • Investment Zones for business investment and release land for new homes across the country

Stamp Duty Changes

The Chancellor, Kwasi Kwarteng, unveiled a package of major cuts to Stamp Duty Land Tax in England and Northern Ireland, doubling the nil rate band from £125,000 to £250,000 for regular purchases meaning a saving of £2,500.

Kwasi Kwarteng also increased the band from £300,000 to £425,000 for first-time buyers while also increasing the value of the property on which first-time buyers can claim relief, from £500,000 to £625,000.

Although this will have a positive impact on the property market, it will not have the same effect as the previous Stamp Duty holiday which created a buying frenzy – this had a deadline which buyers had to complete the purchase by a set date. In a lot of ways this in its self-created problems, mortgage companies and solicitors were inundated with new purchase applications. Hopefully the new permanent Stamp Duty levels will stimulate the market without creating unmanageable levels of purchases, it will support continuous growth in the market.

No change to additional property Stamp Duty surcharges.

Investment Hubs

At present, the Government are discussing with 38 different councils the prospect of individual Investment Zone which offer generous, targeted and time-limited tax cuts for businesses, such as zero stamp duty for land and buildings bought for use or development for commercial purposes, and for purchases of land or buildings for new residential development.

The Market’s Reaction

Following the ‘Mini Budget’ the market and Pound went into freefall with the Pound dropping to new lows against the Dollar. The Government are trying to build growth, but due to the level of inflation and the aftermath of the mini budget we are seeing mortgage lenders withdrawing mortgages. On Thursday, September 29, we saw nearly 1,000 mortgage products withdrawn from the market, mortgage offers withdrawn as lenders are looking at the possibility that the Bank of England will increase rates to try and bring down inflation, plus they want to stabilise the Pound. Customers were left without mortgage options and facing the fact that mortgage interest rates could be on the up again.

The market is expecting a further 1% rate rise with more to follow. So, on one hand the Government is trying to simulate, yet the Bank of England are counter acting this by hiking rates to a level not seen in the last decade.

Many home owners will not remember rates of more than 5% where some customers remember days of 15%. I have seen peaks and troughs from the late 80s and the credit crisis in 2007 and 2008. Whilst the higher interest rates will be an additional cost, which few can afford, I am confident that the market will settle.

The mortgage market in the UK has a vast array of lenders who are looking to support customers’ needs. My expectations over the next few days are that lenders will introduce new mortgage rates. I do expect them to be increased and I don’t expect to see them return to rates which we saw last year. But I have confidence that in time the market will bounce back.

Despite the uncertainties, it seems for the property industry at least things are looking brighter with Rightmove reporting a 10 per cent increase in traffic within an hour of the Chancellor’s announcement.

Dreaming about buying your first home or climbing the property ladder? Before you do, here are a few hints and tips to help you along the way.

When buying your first home, you will probably need a mortgage, so it is important to prepare for the mortgage process — if you get it wrong it can be very costly.

So, would you lend a man on the street £100 without any guarantee you will get your money back? I would be surprised if anyone would agree to that; if you could check to see where he lived, what his income is and if he kept up with any agreements like this in the past, you might then consider it as an option, especially if he was going to pay you some interest. It is the same principle for a bank or building society — it’s all about security for the lender and affordability for you, the customer.

Caroline Hall CeMap CeRER is the Director of Your Mortgage Hub in Lincoln

We are introducing Your Question Hub column. Feel free to ask Caroline Hall any questions you might have regarding the mortgage process and buying a new house. Your questions and her answers may help others looking to embark on the property ladder. Email Caroline your questions on [email protected].

Here are the basics you need to know before you embark on the journey:

Who are you?

The lender will want proof of identity, along with three years’ address history so that they can carry out credit checks. In today’s climate, I recommend that we all have a close eye on our credit files; some companies will email you a free credit file every month. This shows if you keep up with your credit commitments. It will also show credit issues, such as late payments, defaults and CCJs. If you have credit issues, it may still be possible to get a mortgage, but you might just need a bit more help and guidance to get you there.

Can you afford it?

Lenders provide mortgage calculators online. It is important to be truthful when completing your details to get a true figure. A lender will want to see a sustainable income; this can also be from your employment, pension income, or in some cases benefits. 

Deducted from your income will be current or future credit commitments, cost living, and also if you have any financial dependants adult or children. The lender will want to see your bank statements, looking for any spending habits such as gambling or expensive hobbies.

A good idea is to get all your income and expenditure details together and then speak to a whole of market mortgage broker who will be able to assess your affordability. Remember, it is not always how much can you borrow — you have to pay it back, so make sure that it isn’t going to be a financial burden.

Your first home

The property needs to be valued for mortgage purposes. This is how the lender knows if the property is suitable security for the mortgage requested. If it’s not a new built, it is also recommend you have a survey looking at the overall condition of the property. You will need buildings insurance in place at point of exchange of contracts, and this can be in some cases several weeks before completion.

Costs and fees

A mortgage broker will help you understand all the associated costs and you shouldn’t have any hidden surprises. Whether you are a first time buyer or maybe moving to accommodate a growing family, understanding your options and getting it right is really important – buying a property and taking on a mortgage is the most expensive commitment you are likely to make – so take some good advice.