On Wednesday (March 15) Chancellor Jeremy Hunt presented the government’s 2023 Spring Budget. The main focus of the budget was to stimulate the economy and jobs, with a reduced tax on beer thrown in for good measure.
But what does the new budget mean for the UK housing market going forward? Housing site Zoopla has looked into what the new changes actually might look like for everyday homeowners.
According to the website’s head of research, Richard Donnell, there is little direct impact on the market in the new budget. The stamp duty remains unchanged and there are no major changes to landlords, apart from a lower level of tax free gains before the need to pay capital gains tax.
“As household budgets are squeezed with higher mortgage rates and cost of living pressures, this was a budget that focused on stimulating the economy and jobs,” says Richard.
The increased focus on jobs and the economy ultimately supports the UK housing market as the status of the market is directly linked to how the economy is doing. Prices and sales stagnate and fall when the economy is doing badly and more people are unemployed, and thrives when the economy is healthy and income is higher.
Over the last two years, the increased tax burden on households with mid to high income, means there has been no growth in post tax disposable income. And the cost of living crisis has also squeezed budgets and made wallets thinner with higher energy bills - but the three month energy price cap extension announced in the budget will surely be welcomed by many households.
People looking to buy their first home or remortgage have also seen increased pressure with higher mortgage rates. But, Mr Donnell said: “It’s welcome news that a very high proportion of those with mortgages are on five-year fixed rate deals but as they come off these deals the increased monthly payments will hit monthly budgets.
“Mortgage rates have fallen back to 4.5 percent for new home buyers. This is well down on the 6% high’s seen at the end of last year but remains more than double mortgage rates a year ago.
“The housing market can withstand higher mortgage rates and we have consistently argued that sub-5% mortgage rates would not lead to big price falls and this is bearing out.”
First time buyers do however have 20 percent less buying power compared to this time last year. But that does not mean that prices will fall by the same amount, but that people will be looking to buy smaller homes or move to cheaper areas to get more value for their money.
Mr Donnell adds that the best way to offset higher borrowing costs is to help boost household incomes. The weaker buying power has also led to a slight shift towards flats, as the first home buyers of the year have been searching for more value for their money.
Zoopla is expecting the mortgage rates to stay in the 4-5 percent range over the year. So those planning to move or buy their first home should not expect lower ratings than this and plan accordingly.
“The big challenge in the housing market is affordability, especially for those who rent or have small deposits to put towards a home,” says Richard. “Rents are rising fast, up 11 percent, which is well ahead of earnings growth, which is currently 6.7 percent.
“Many younger households looking to buy and renters of all ages are concerned about the lack of supply and scale of recent rent increases. This is all a result of low rental supply and a lack of growth in the size of the private rented sector over the last six years.
“As well as focusing on jobs and growth, it’s important that the government continues to focus on growing housing supply through the development of new homes of all tenures. Only by improving supply can we ease the affordability pressures felt across the market.”