Autumn Statement 2023: what it means for the housing market
95% mortgage guarantee scheme extended, 40,000 new homes to be built and Local Housing Allowance unfrozen to help renters on the lowest incomes.
There were no huge surprises for the housing market in today’s Autumn Statement.
Rumours of a stamp duty cut to kickstart the market did not come to fruition. But buried in the detail was news that the existing mortgage guarantee scheme would be extended.
The scheme was first introduced in 2021, with the aim of encouraging lenders to offer 95% loan-to-value (LTV) mortgages for buyers with a 5% deposit.
Mortgages issued under the scheme are backed by the Government, meaning if the buyer defaults, the Government will step in to cover some of the shortfall.
The scheme was due to end in December, but will now run until the end of June 2025, in a bid to continue to help prospective borrowers with smaller deposits buy a home.
Our expert's view
Richard Donnell, Executive Director comments: 'First-time buyers continue to be a key engine for the housing market - however they have to rely on the Bank of Mum and Dad.
'Although first-time buyers get a lot of support through stamp duty relief, the big hurdles remain having the income needed to afford a mortgage alongside raising a deposit.
'Extending the mortgage guarantee will help some buyers struggling to borrow for their first property.'
In the last two years since the scheme started in April 2021, it has been used to help 37,800 households, 86% of whom are first-time buyers.
This equates to around 5% of first-time buyers using a mortgage to buy a home between April 2021 and May 2023.
However, in comparison, the Help to Buy equity loan scheme was more generous - helping 387,200 buyers since it started a decade ago, 85% of which were first-time buyers. This scheme helped around 1 in 10 first-time buyers using a mortgage.
'With this in mind, the key to the extension of the Mortgage Guarantee Scheme will be improving its affordability and appeal,' said Donnell.
National living wage increased and National Insurance cut
The Chancellor also focused on boosting incomes for households, which in turn, could help to improve housing affordability.
An increase in the National Living Wage was unveiled, alongside a cut in National Insurance for both employees and self-employed individuals, helping to put more money back into the nation’s pockets.
This news will be welcomed by many as household budgets continue to be squeezed thanks to the ongoing cost-of-living crisis.
This, alongside high mortgage rates, have added further pressure for first-time buyers and home movers, causing property transaction levels and house prices to slump.
Inflation set to hit 2% target in 2025
Improving affordability is one way to help combat this, but with the Bank of England projecting inflation to fall to its target in the first half of 2025, mortgage rates could also fall faster than expected in 2024. If this happens, we could also start to see a rise in house sales.
'The most important focus for the Government should be deploying policies that help support the reduction in borrowing costs for all buyer groups,' says Donnell.
'This needs to be supported by boosting housing supply through new house building and more support for affordable housing schemes to help those on all incomes.'
£110m to boost new homes supply
On house building planning applications, the Chancellor promised to invest more than £110 million this year and next to build 40,000 new homes and boost supply.
He also promised to invest £32 million to 'bust the planning backlog' and develop new housing in cities such as Cambridge, London and Leeds.
An additional £450 million will be allocated to the Local Authority Housing Fund to build around 2,400 new homes.
The Chancellor also announced plans to consult on a new permitted development right, enabling any home to be converted into two flats, so long as the exterior remains unaffected.
Local Housing Allowance rate unfrozen for lowest income renters
Finally, in rental news, the Local Housing Allowance rate, which affects how much help you get when renting from a private landlord, will be increased, having been frozen since 2020.
The increase should help families struggling to afford rising rents and will give 1.6 million households an average of £800 of support next year.
Key takeaways
- Mortgage Guarantee Scheme extended until end of June 2025
- £110 million to be invested in new home developments this year and next to build 40,000 new properties
- Freeze on Local Housing Allowance Funds removed, giving 1.6 million households an average of £800 of support for their rental costs next year
What does Jeremy Hunt’s Autumn Statement 2023 mean for household budgets?
Living wage and pensions rise as National Insurance comes down. What does Jeremy Hunt’s Autumn Statement mean for household budgets?
Chancellor Jeremy Hunt unveiled his Autumn Statement this afternoon, announcing a rise in the living wage and pensions.
National Insurance will be cut from January and inflation is on track to reach 2% by the end of 2025.
Here’s what happened:
Wages
The national living wage will rise from £10.42 an hour to £11.44 an hour, working out as an average increase of £1800 a year for a full-time worker.
Pensions
The state pension is set to rise 8.5% or £900 a year.
The chancellor also announced plans for employees to ask a new employer to pay contributions into existing pension pot, if they so choose, rather than being asked to adopt a company’s specific pension scheme.
National insurance contributions
National Insurance will be cut from 12% to 10% from January 6th, saving a worker earning £35,000 a year £450.
Nurses will save an average of £520 a year, police officers £630 a year.
National Insurance relief will also continue to be provided for businesses supporting veterans until April 2025.
Self employed
In recognition of the plumbers, delivery drivers and farmers who kept the country running throughout the pandemic, self-employed taxes will be simplified and reformed.
Class 2 National Insurance contributions, which are a flat rate of £3.45 a week for those earning up to £12,500 a year, will be abolished, saving the self-employed £192 a year.
Class 4 NI contributions of up to 9% for those earning between £12,300 and £50,270 a year will be cut to 8% from April, saving two million people an average of £350 a year.
Inflation
Following the worst global inflation shock for a generation, inflation fell last week to 4.6%
The government anticipates it will fall to 2.8% by the end of 2024 and to 2% by the end of 2025.
The Chancellor thanked the Bank of England for its role in helping to bring it down and pledged to support families in financial difficulty.
Universal credit increased and housing benefit freeze ended
‘Cost of living pressures remain at their most acute for the poorest families,’ said Hunt.
Universal credit is now set to rise 6.7% in line with September’s inflation rate, the equivalent of £470 for 5.5 million households next year.
And because the cost of rent can take up to half of the living costs for those that rent on the lowest incomes, the Local Housing Allowance will also no longer be frozen, as it has been since 2020.
Housing benefit will now cover the bottom 30% of local rents from April 2024, providing an extra £800 of support for 1.6m households.
Welfare reforms
The Chancellor announced a ‘Back to work’ plan for the 100,000 new people who claim benefits every year because of sickness or disability, ‘where treatment, rather than time-off becomes the default’.
If a Universal Credit claimant in England and Wales has failed to find a job after 6 months, they will be referred to an expanded and improved Restart scheme, providing 12 months of intensive, tailored support including coaching, CV and interview skills, plus training sessions.
Claimants who are still unemployed after 12 months on Restart will be required to accept a time-limited mandatory work placement.
If a claimant refuses to accept without good reason, their Universal Credit claim will be closed. This model will be rolled out gradually from 2024.
Cigarettes & booze
Aside from the government’s plans for a smoke-free generation (prohibiting the sale of tobacco products to anyone born after January 1, 2009), from today, duty rates on all tobacco products will increase in line with inflation +2% .
For hand-rolling tobacco, an extra 10% tax increase will be added, meaning it will increase in line with inflation + 12% this year.
Confirming the Brexit pubs guarantee, the chancellor confirmed that all duty on alcohol will be frozen until 1st August 2024, meaning there will be no increase on beer, cider, wine or spirits.
Clean energy
The UK is currently a world leader in the deployment of offshore wind - and plans to create new offshore wind farms are underway, including floating wind farms in the Celtic Sea.
A further £2 billion is being set aside for a target of zero emissions in the automotive sector.
Overall growth
Last autumn, the Office for Budgetary Responsibility forecast that the economy would shrink 1.4%.
But it has grown and is now 1.8% larger than it was pre-pandemic, meaning the UK economy has grown faster than those of Spain, Portugal, France, Italy, the Netherlands, Germany and Japan.
It’s predicted to grow 0.6% this year and 0.7% next year.
Key takeaways
- National living wage rises from £10.42 to £11.44 an hour
- Pensions up 8.5% or £900 a year
- National Insurance cut from 12% to 10% from January 6, 2024, meaning a worker earning £35,000 a year will be £450 better off