Private Finance Mortgage Memo

is our take on what is currently happening in the mortgage market. Our views
are often cited in several national publications, including; BBC News, The
Times, Telegraph, City AM, FT Adviser and Daily Mail, as well as a number of
key trade publications, so this should keep you ahead of the curve. If you have
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  • September Mini-budget – Stamp Duty, rise in equity release and energy support
  • Decrease in expat enquiries

September Mini-budget – Stamp Duty, rise in equity release and energy support

On Friday, Kwasi Kwarteng will deliver the September mini-Budget, set out to provide strategies for economic growth and more detail on energy support to ease the cost-of-living crisis. Liz Truss is also expected to announce radical changes to stamp duty, allowing more people to move home and enable more first-time buyers to get onto the property ladder.

How will a change in stamp duty impact the housing market?

The effects of a cut in Stamp Duty depends if it’s a short- or longer-term measure. We saw during the pandemic how much the market moved during the SDLT holiday and ultimately it created a degree of fluidity in transactions. While this was only temporary, changes that help people move up the ladder or incentivise downsizing should be considered, and this could have a very positive impact on housing stock availability. We would welcome a cut in stamp duty for households looking to downsize as this would free up much needed housing stock. We believe the current lack of larger family homes is partly due to the disincentive effect of SDLT on purchases for second steppers and those looking to downsize and this in turn leads to stock not being freed up.

Older people with houses that are now bigger than they require are put off moving as if they were buying a smaller house at say £450k, that would incur £12,500 worth of SDLT, 1.5% of fees to sell so £6,750 and legal fees on top of that – so more than £20k and while this generation may be asset rich, they may be cash poor. This would also take money out of inheritance and possibly savings just to downsize so are put off doing it.

We expect to see an increase in later life lending and equity release to keep up with the cost of living, especially as pension increases are nowhere near matching the rising cost of living. Although measures are put in place to keep the “average” cost of energy down, many older people do not live in “average” houses and generally consume more gas and electricity for heat.

What else we would like to see in the mini-budget?

In the budget, it would also be helpful to receive more firm details on last week’s energy plan. Some lenders may have been adjusting their affordability assessments ahead of entering an ‘un-capped’ energy market, however now the limit on energy prices for the next two years will mean incomes will be squeezed to a smaller extent and this should be reflected in lender’ affordability. Another important consideration is the impact of tax-cutting measures on the Bank of England base rate. An increase in the base rate will likely impact more those needing to remortgage soon, while those locked into a fixed rate and can ride out the economic storm are more insulated.

Decrease in expat enquiries

In our weekly analysis of rate movements in the best available rates for the residential and BTL market, we have noticed BTL rates have caught up with residential rates for the most part, the 2- and 5-year best BTL mortgage rates increasing by 0.4% and 0.3% respectively the past week.  Where previously, the best available BTL rates typically came with high fees, now these rates are more in line with average BTL rates in the market – higher rates but with lower fees than before.

Expats and foreign nationals living abroad usually pay a premium on rate with specialist lenders, and as the cost of borrowing is higher with rising rates in the BTL market, borrowing power is reduced and the return-on-investment potential for these borrowers is now less attractive. And so, we have noticed a drop in enquiries and cases proceeding for expats and foreign nationals.

With an interest in investment properties with a higher ROI, international investors may be looking at other countries with better rates, better tax laws, exchange rates or perhaps more stable economic conditions with lower inflation. Mortgage rates in some Eurozone countries may be lower than in the UK, with lower inflation and warmer climates perhaps making this a more attractive investment option.

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