Stamp Duty cut for homebuyers as BoE raise interest rates by 0.5% to 2.5% and say the UK “may” already by in recession

The Chancellor Kwasi Kwarteng has cut Stamp Duty for 200,000 homebuyers to stimulate the property market a day after the Bank of England (BoE) has raised the UK base interest rate from 1.75% to 2.25% to combat inflation and warning that the country “may” already be in recession. A recession is officially measured by two negative growth quarters, which has not yet been recorded.

The independent BoE move follows the Federal Reserve’s 0.75% hike this week.

UK borrowing costs are now at their highest levels since 2008 putting pressure on mortgage holders and the housing market.

The new rate rise alone could add up to £690 per annum or £57 per month to an average variable rate mortgage (on top of previous rate rises), although not all lenders follow the BoE base rates.

Mortgage brokers are reporting long delays in obtaining an offer and fixed rate deals being pulled at short notice.

Inflation has dipped slightly to 9.9% but is still at a 40-year high in most western countries.

The pound fell again to $1.11, which means the markets have no confidence in the currency.

Everything the UK imports is now being inflated by a weak pound.

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How high will interest rates go?

The Bank of England’s Monetary Policy Committee (MPC) meets in less than two week on 3 November and could be forced to raise rates again. The markets expects rates to rise to 4.5% by next year, which could push mortgage rates to over 7%, a level I have not seen for 20 years.

Now could be the time to get advice from a broker about fixing your mortgage rate for at least 3-5 years.

If you are already in a fixed rate deal and have a year or two left, you might want to consider switching to a longer-term rate even if you have to pay a small ERC – early redemption charge or penalty. Talk to a broker to weigh up the costs and benefits or do your own calculations by factoring in an interest rate of around 4.5%.

With 10% inflation and a weak pound, interest rates are on an upward trend, so take action now to protect yourself.

Buy-to-Let yields will look very different at those levels, yet investors still see property as a safe long-term haven for their cash.

Property values in most areas usually grow in the long term and inflation reduces the real value of a mortgage debt.

There is still a shortage of suitable properties and demand for bricks and mortar.

Highly geared property investors with large amounts of debt could get into trouble leading to more repossessions.

A recession could see commercial landlords coming under pressure as business suffers, which means more opportunities for some investors.

The government do not want the property market to crash and will be announcing measures to stimulate the market for fist-time buyers.

The stock market is another story and has already started to slide this year.

Rates for savers have barely moved. Some savers are turning to funding property transactions either through peer-to-peer lending platforms or direct to property investors – cutting out the banks. However, lending out your money in this way carries a far greater risk.

Stamp Duty Cut

• Threshold raised from £125,000 to £250,000.
• First-time buyer nil rate band lifted to £425,000.
• 200,000 people will be taken out of Stamp Duty tax altogether.

The April NI tax rise has been reversed saving employees and employers hundreds of pounds a year.

Income tax reduced to 19% from April 2023 giving back £170 to 31 million people.

Highest rate of 45% abolished.

All goo d news but more money is effectively being printed and the national debt increased or deferred, which means paper currency is being devalued.

Corporation tax rise cancelled.

Bad news for HMO Landlords

The government plans to introduce legislation to force landlords who include bills as part of the rent to “repay” the £400 rebate to the tenant!

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