budget balance

New budget needs to put housing market on an “even keel”

While there may be more “difficult decisions” to come from the government, property industry insiders hope the latest budget tax reversal will temper the markets and help the housing sector maintain its strong performance.

The new Chancellor Jeremy Hunt set the wheels in motion for improving the country’s economic stability this week, with some big U-turns announced to reverse the effects of previous Chancellor Kwasi Kwarteng’s mini-budget.

Hunt’s Medium-Term Fiscal Plan lays out how the government will proceed over the coming six months, with a more detailed announcement set to be delivered on 31 October, alongside the Office for Budget Responsibility’s independent forecast.

In terms of the housing market, the major impact being seen at the moment is linked to rising interest rates in the mortgage sector. After resting at historic lows for a number of years, mortgage rates have been creeping up along with the Bank of England’s increase of its base rate.

Meanwhile, though, the level of property stock available is still short of the number of buyers and renters in search of homes or investments, which many forecast will limit the impact on house prices as borrowing becomes more challenging.

Balancing the books through the budget

According to Anthony Codling, CEO of Twindig and property market analyst, the major priority for Jeremy Hunt in his future budget announcement and plans should be aimed at alleviating the rising cost of living and mortgage rates to support the housing market.

He said: “The first challenge for Mr Hunt is to explain in detail how he will balance the books. Until he has done that, the markets will remain unsettled, and the more markets are unsettled, the higher mortgage rates will rise.

“The second challenge he faces is to put the housing market back on an even keel. Whilst much of the recent economic turbulence can be traced back to the contents of the mini-budget, unfortunately for Hunt, the housing market started to drift south as living costs and mortgage rates started to head north.”

Housing market will adjust

Economic stability is the government’s primary focus at the moment, and the latest moves such as replacing the Chancellor and reversing Kwarteng’s budget statement should have the desired impact of increasing security. This, in turn, is expected to have a knock-on effect on confidence in the housing market.

Lawrence Bowles, director of research at Savills, said: “Already we have seen long-term gilt yields fall on the back of rumours that the government will be backing down on some of Kwarteng’s unfunded tax cuts.

“Confirmation, as well as news of his dismissal as Chancellor, should help to push yields down further, allowing the Bank of England to slow its pace of monetary tightening and easing pressure on mortgage costs. And with more breathing room, lenders should feel the confidence to put more products back out to the market.

“As a result, we believe that some of the existing downward pressure on house prices and transactions will be tempered. That said, the market will still need to adjust to the current higher interest rate environment, though perhaps not at such an amplified level.”

Adrian Anderson, director at Anderson Harris, is also confident that the appointment of the new Chancellor will go some way towards easing the markets. “Jeremy Hunt is an experienced politician. He is likely to be seen as a safe pair of hands that can help to restore confidence and calm volatile markets,” he said.

“A reversal of the proposed tax cuts could take the edge off inflation and slow down some of the pressure we are seeing on rates for fixed mortgages.”

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