What can I do if my home is repossessed?

We take a look at what you should do if you are struggling to pay your mortgage, or if your rental home is repossessed.

Key takeaways

• Home repossessions rose by 15% to 700 properties in the three months to the end of September
• There was also an 11% jump in the number of buy-to-let homes that were repossessed
• If you're struggling with your mortgage contact your lender as soon as possible, if you rent your home you may be able to stay in it, even if it is repossessed

 

---

by Blackstones

What Jeremy Hunt's autumn statement means for the housing market

Stamp duty cuts reversed and rising council tax rates on the way - but the energy price cap remains in place. And what does it all mean for mortgage rates?

Chancellor Jeremy Hunt today set out plans to fill a £55 billion hole in the government’s finances through a combination of tax rises and spending cuts.

The deficit was created by former Chancellor Kwasi Kwarteng’s now infamous mini-Budget, which sparked chaos in the financial markets and led to a steep increase in government borrowing costs.

Just under half of the £55 billion will come from tax rises, with just over half coming from cuts to government spending, Hunt said.

He added that once the UK’s economy had recovered, the pace of fiscal consolidation would be increased, to reduce pressure on the Bank of England to raise interest rates.

What’s the big picture?

The Office for Budgetary Responsibility (OBR), which provides independent analysis on the government’s finances, confirmed that the UK is already in recession.

But Hunt said the OBR expects the downturn to be shallower as a result of the measures in the Autumn Statement.

The OBR forecast the economy will grow by 4.2% this year, before contracting by 1.4% in 2023, with growth recovering to 1.3% in 2024.

Meanwhile, inflation will average 9.1% this year, before starting to fall steeply from the middle of next year.

Unemployment is expected to rise from its current rate of 3.6% to  reach 4.9% in 2024, before falling back to 4.1%.

Which taxes are going up?

Income tax

The Chancellor announced that the thresholds at which the different rates of income tax kick in will be frozen at their current level for six years.

This means the basic rate of 20% will be charged on all earnings over £12,570 until April 2028, while the 40% rate will be charged on earnings over £50,270 until the same date.

Meanwhile, more high earners will be pulled into the top rate of income tax, with the level of income on which the 45% rate is charged being reduced to £125,410 from £150,000 now.

The move will cost those earning more than £150,000 around £1,200 a year.

The thresholds for National Insurance for individuals will also be frozen.

Stamp duty

Kwarteng’s increase to the threshold at which stamp duty is paid to £250,000 was one of the few mini-Budget measures that were not reversed by Hunt when he took office.

But he announced today that the increase will be temporary, with the threshold falling back to its previous level of £125,000 after 31 March 2025.

The threshold for first-time buyers will also be cut to £300,000 from £425,000, on properties costing up to £500,000, rather than £625,000.

He justified the measure by saying that activity in the housing market was expected to slow down over the next two years, and reverting back to the former stamp duty threshold in 2025 would encourage people to bring forward purchases.

The move will cost people purchasing a home for more than £250,000 an extra £2,500 in higher stamp duty payments.

Executive Director of research and insight, Richard Donnell, says: "The government's announcement of a reversal of the recently announced stamp duty changes in 2025 signifies a real need to reform stamp duty - a tax that is now starting to resemble income tax where it's the top tax bands generating the greatest receipts.

"This reversal will make it increasingly difficult for prospective first-time buyers to get on the housing ladder in the coming years, particularly in London and the South East which accounts for the majority of stamp duty receipts."

Council tax

Hunt has lifted the cap on council tax increases to give local authorities more freedom to raise cash.

Local authorities will now be able to raise council tax by up to 5% without having to hold a referendum on their plans.

The impact of the move will vary from council to council, as well as according to individual property bands, but it could see the average amount charged on a band D property rise from £1,966 to as much as £2,064.

Capital gains tax

Capital gains tax is charged at a rate of 18% on residential property and 10% on other assets for basic rate tax payers, and 28% and 20% respectively for higher rate taxpayers. But the first £12,300 of gains are tax free.

However, Hunt announced today that he was reducing the tax-free threshold to £6,000 from April 2023, and to £3,000 from April 2024.

The move will impact investors who sell buy-to-let properties, but the tax is not charged on the sale of people’s main home.

Inheritance tax

The threshold at which inheritance tax starts has also been frozen at its current level of £325,000, although couples can still combine their allowances and assets left to a spouse or civil partner will not be liable for the tax.

In another blow for people planning to leave their family home to their children, the Chancellor also announce the introduction of a cap on social care costs would be delayed by two years.

The cap had been due to come in to force in October 2023, and would limit the total amount individuals had to spend on social care as they aged to £86,000, after which the state would step in to foot the bill.

The cap would have reduced the number of elderly people who had to sell their family home to pay for care.

What support is available?

Hunt had previously warned that the Energy Price Guarantee, which limited average household energy bills to £2,500 a year would be reviewed at the end of March, sparking concerns that it could be scrapped altogether.

But there was good news for struggling households, with Hunt saying it would remain in place but be increased to £3,000 a year for a further 12 months.

Although the move will cost the typical household an additional £500 a year, the sum is significantly less than they would have to pay if the guarantee was abolished altogether.

He also announced that people on means tested benefits would receive a one-off £900 cost-of-living payment, while pensioners would get £300, and those on disability benefits would receive £150.

In addition, the state pension and means tested benefits will be increased by 10.1%, in line with the level of inflation as measured by the Consumer Prices Index in September.

People who rent their home from a social landlord will have rent increases capped at 7% for 2023/24.

What does this mean for the mortgage market?

It’s too early to say how financial markets will react, but the statement is expected to reassurance them after the chaos caused by the mini-Budget.

Not only does Hunt set out exactly how he plans to fill the government’s budget deficit, but he has also published the OBR’s response to his plans.

The interest rates charged on fixed rate mortgages had already fallen before today’s statement, and they are likely to continue their downward trend following it.

Hunt’s announcement that the rate at which fiscal consolidation would take place would increase once the economy returned to growth also means the Bank of England will be under less pressure to raise interest rates, which is further good news for mortgage rates.

Director of estate agency Anderson Harris, Adrian Anderson, says: “In today’s Autumn Statement, Chancellor Jeremy Hunt highlighted the importance of getting inflation and mortgage rates under control before announcing a raft of measures, both tax rises and spending cuts, in an attempt achieve that goal.

“Whilst the medicine will be painful for many, for mortgage borrowers spiralling inflation combined with consequential higher interest rates is punishing and I am hopeful that these steps will result in the Bank of England base rate peaking around 4% as now predicted."

What does it all mean for the housing market?

The statement is a mixed bag for the housing market.

Activity has already slowed in the face of higher living costs, rising interest rates and economic uncertainty.

The freezing of the income tax thresholds, combined with higher council tax and energy bills will do little to change this.

That said, the continuation of the Energy Price Guarantee from April, albeit at a slightly higher level, will reassure consumers that they will not face a steep increase in their gas and electricity bills come the spring, and could go some way towards increasing confidence.

Meanwhile, news that the threshold at which stamp duty is charged will fall back to £125,000 in April 2025, may cause some people to bring forward their purchase.

The fact that unemployment should not increase significantly should also help to prevent a high level of forced sales, while the overall stability the statement brings is also good news for the housing market.

The one area of bad news is the decrease in the capital gains tax allowance in 2023 and 2024.

Some commentators have warned that the move could prompt small-scale buy-to-let landlords to sell their properties ahead of the decrease, further intensifying the shortage of homes in the private rented sector.

Key takeaways

• Stamp duty cuts to be reversed in April 2025
• Energy price cap, raised to £3,000, to stay in place for a further 12 months
• Councils given the power to increase council tax
• Capital gains tax threshold reduced to £6,000
• Inheritance tax threshold frozen at £325,000

---

by Blackstones

Inflation expected to fall sharply next year

The Bank of England predicts inflation will be below its 2% target in two years time, and close to zero in three years, leading to lower mortgage rates.

Minutes from the Bank of England’s latest interest rate setting meeting triggered some alarming headlines.

But while some outlets warned that the UK was heading for its longest recession since records began, there was actually good news buried in the minutes of its meeting - including suggestions that interest rates may not need to rise by as much as previously expected.

We take a look at some of the positives from the report and how they will impact the housing market.

The recession will be long but may not be too deep

The most eye-catching prediction from the Bank’s Monetary Policy Committee’s (MPC) minutes was that the UK is likely already in a recession, which is expected to last for two years.

If this prediction is correct, it would be the longest recession for the country since records began in 1920.

But what received less attention is the fact that economic growth is expected to contract by 1.9% in 2023 and 0.1% in 2024.

This means that while the MPC is expecting the recession to be long, it does not think it will be too deep.

To put these figures in context, the current recession would be significantly less bad than the one in the wake of the global financial crisis, when GDP growth contracted by 2.6% in a single quarter, and by 7.1% across five quarters in 2008 and 2009.

During the Covid-19 pandemic, GDP dived by a record 19.4%.

Economists have also pointed out that the MPC’s forecast is based on current market predictions for interest rates.

But the MPC suggested interest rates will not need to rise by as much as markets think, suggesting the recession could be less severe than its forecast suggests.

Unemployment will remain reasonably low

The MPC also forecast a rise in unemployment in its minutes, predicting the proportion of people who are out of work would increase from 3.5% now to 4.9% by the end of 2023.

While the increase may sound alarming, it is important to see it in context.

Unemployment is currently at its lowest level since 1974. A rise to 4.9%, would put the number of people out of work broadly on the same level as in early 2021 during the pandemic.

Looking further ahead, the MPC expects unemployment to continue rising in 2024 and 2025 to reach 6.4% by the end of that year. That's still well below the peak of 10.7% seen in the 1992 recession.

The fact that the number of people likely to lose their job is expected to remain relatively low compared with previous recessions, is good news for the housing market.

In the past, steep rises in unemployment led to a high level of forced sales, as people were no longer able to keep up with their mortgage repayments, triggering house price falls.

But that looks unlikely to happen this time around. Not only are job losses expected to be limited, but lenders are also now required by regulators to work with people who run into difficulties repaying their mortgage, and only repossess their home as a last resort.

Inflation should peak soon, then fall sharply

A major factor contributing to the current slowdown in activity in the housing market is the cost-of-living squeeze.

Steep increases in the cost of food, petrol and energy have made consumers more cautious, and caused them to delay making big purchases, such as a buying a new home.

It also makes it harder for them to pass mortgage affordability tests, as more of their money is being spent on essentials.

But the MPC expects inflation to peak at 11% in the final three months of this year, before falling sharply from the middle of next year.

In fact, it predicts inflation will be below its 2% target two years from now, and be close to zero in three years’ time.

Getting inflation back under control will not only boost consumer confidence, but it will also enable the MPC to reduce the Bank Rate – the official cost of borrowing – which should lead to lower mortgage rates.

Interest rates may not rise by as much as expected

This one is a bit more speculative, as the MPC does not make predictions on interest rates.

But it did appear to signal that the Bank Rate may not need to increase by as much as markets currently expect.

When the MPC held its November meeting, money markets had priced in further increases to the Bank Rate to 5.25%.

As is customary, the MPC based its economic forecasts on interest rates peaking at this level.

Although it continued with its previous rhetoric that it will “respond forcefully, as necessary” to get inflation back down to its 2% target, it also said the impact of previous interest rate rises had not yet been fully felt.

In a press conference following the meeting, Bank Governor Andrew Bailey also said the Bank Rate would have to go up by less than currently expected by financial markets.

He said: “Our best view of where the rate should be … is nearer the constant rate curve [3.00%] than the market rate curve [5.25%].”

Economists have interpreted his comments as suggesting the Bank Rate could peak at between 3% to 4%, meaning it may not rise much further from its current level of 3%.

This is obviously good news for mortgage rates.

Variable rate mortgages, such as tracker products and standard variable rates, move up and down in line with changes to the Bank Rate.

Fixed rate mortgages are based on so-called swap rates, which are themselves based on what the money markets think will happen with interest rates in the future.

In both cases, if interest rates do not need to rise by as much as previously expected, mortgage rates will also be lower.

What does this mean for the housing market?

Activity in the housing market has been hit by a combination of the cost-of-living squeeze, economic uncertainty, and the recent increase in mortgage rates.

If inflation peaks soon and mortgage rates do not rise any higher, it could help to restore consumer confidence.

In fact, the cost of fixed rate mortgages, which has already come down since the mini-Budget, is expected to continue to fall during the final part of the year.

At the same time, a sharp spike in unemployment in 2023 is not expected, meaning there are unlikely to be a high level of forced sales.

Even so, mortgage rates still remain significantly higher than they were at the start of the year, which, combined with higher house prices, will impact affordability.

This is likely to lead to lower buyer demand, and house prices are likely to drop from their current record level in some areas.

 

Key takeaways

• Getting inflation back under control will enable the MPC to reduce the Bank Rate – the official cost of borrowing – which should lead to lower mortgage rates
• Economists are suggesting the Bank Rate could peak at between 3% to 4%, meaning it may not rise much further from its current level of 3%
• While the recession that the UK is already in will be long, it will not be too deep

 

---

by Blackstones