Autumn Budget

A BUDGET FOR HARD-WORKING FAMILIES…

 

Philip Hammond, the Chancellor of the Exchequer, delivered a Budget which he declared “shows the British people that their hard work is paying off“. Mr Hammond was under intense pressure to loosen the purse strings. He did announce several new cash injections, while suggesting that “the era of austerity is finally coming to an end“.

OBR Forecasts

The Chancellor began his statement by revealing the latest economic forecasts from the Office for Budget Responsibility (OBR) which showed a significant improvement in the public finances. Public borrowing for the current fiscal year was forecast to be £11.6bn lower than predicted in the Spring Statement and is then forecast to fall from £31.8bn in 2019/20 to £19.8bn in 2023–24, which would be its lowest level in more than 20 years. The OBR also raised its economic growth forecast for next year to 1.6% from 1.3%, while the 2020 growth forecast was revised up to 1.4% from 1.3%. Growth forecasts for 2021 and 2022 were maintained at 1.4% and 1.5% respectively, and a new forecast of 1.6% was unveiled for 2023.

Brexit

This was the Chancellor’s final Budget before the UK leaves the EU, and Mr Hammond stated that we are currently at a “pivotal moment” in the Brexit negotiations and confidently predicted that the UK will build a new future outside the EU. He also announced that an extra £500m was being set aside for preparations for leaving the EU and reiterated that next March’s Spring Statement could be upgraded to a full Budget if required. In addition, he announced plans to make e-passport gates at Heathrow and other airports available to visitors from the US, Canada, New Zealand, Australia and Japan as well as EEA citizens. However, it’s fair to say that the subject of Brexit did not exactly dominate his Budget Statement as some prior media speculation had suggested. A commemorative 50p coin to mark the UK’s departure from the EU will be launched.

Personal Taxation, Wages and Pensions

On the personal taxation front, the Chancellor announced that the personal allowance threshold is set to rise from £11,850 to £12,500 in April 2019, while the higher rate income tax threshold will increase from £46,350 to £50,000. This move was being introduced a year earlier than originally planned, a situation which Mr Hammond said was possible due to the improving state of government finances. In addition, the Chancellor announced that the two tax thresholds would subsequently rise in line with inflation (CPI).

The lifetime allowance for pension savings will increase in line with CPI for 2019/20, rising to £1,055,000. The ISA subscription limit for 2019/20 will remain unchanged at £20,000 and JISAs will be uprated in line with CPI to £4,368. The government is set to publish a consultation next year for maturing Child Trust Fund accounts and on the taxation of trusts.

Mr Hammond also said that the National Living Wage is set to increase by 4.9%, from £7.83 to £8.21 an hour, from April 2019, and that work allowances for Universal Credit were to be increased by £1,000 per annum, a move which would see 2.4 million working families with children, £630 a year better off.

The Chancellor also announced a freeze in fuel duty for the ninth successive year, and that beer, cider and spirits duties were also to be frozen. Wine duty is, however, set to rise in line with RPI inflation, while tobacco duty will continue to rise by RPI plus 2%.

In an effort to address pensions cold-calling, the government is publishing a response to its consultation and will shortly be implementing legislation to make it illegal.

The Department for Work and Pensions will consult later this year on supporting the launch of pensions dashboards, allowing people to view their pension pots, including their state pension, in one place. They also intend to publish a paper outlining the government’s approach to increasing pension participation among the self-employed.

Enterprise and Business

The Budget Statement also included a number of measures to tackle the challenges facing business due to technological changes. This included plans to introduce a new 2% Digital Services Tax from April 2020, although Mr Hammond was at pains to stress that this would be carefully targeted and only levied on profitable companies that have at least £500m a year in global revenues, other criteria apply. The Chancellor also announced some relief for hard-pressed high street businesses, with business rates bills set to be cut by one third for firms with a rateable value below £51,000 over a two-year period from April 2019. This will benefit 90% of retail properties. Through the ‘Our Plan for the High Street’ initiative, a £675 million fund to support a sustainable transformation of high streets is pledged. He also announced that the Annual Investment Allowance was set to be temporarily increased from £200,000 to £1m for two years in order to stimulate business investment.

Another key announcement related to the Private Finance Initiative (PFI), with the Chancellor saying there was compelling evidence that such contracts do not deliver value for taxpayers or genuinely transfer risk to the private sector. He therefore stated that all future PFI contracts are to be abolished although he did stress that the government will honour existing contracts.

The government welcomes the FCA’s plans to expand access to the Financial Ombudsman Service (FOS) to small and medium sized enterprises, along with its consultation on increasing the FOS award limit to £350,000.

Housing

During his speech, the Chancellor noted that the number of first-time buyers is currently at an 11-year high. He then announced that he will be extending the exemption of stamp duty for all first-time buyers purchasing shared equity homes up to a value of £500,000, and that this measure will be retrospective, thus benefiting first-time buyers who have made a purchase since the last Budget on 22 November 2017.

The Chancellor also announced plans to add £500m to the £5bn Housing Infrastructure Fund that was designed to help get a further 650,000 homes built, along with new housing association partnerships in England that would deliver a further 13,000 homes.

From April 2021 a new Help to Buy Equity Loan scheme will run for two years, available to first-time buyers only and for homes with a market value up to a regional property price cap.

Closing Comments

Philip Hammond closed his Budget Speech with these words:

Austerity is coming to an end – but discipline will remain. We are at a turning point in our history and we must resolve to go forwards, not backwards and work together to build a Britain we can all be proud of.

Other key points

  • Confirmed an extra £20.5bn for the NHS over the next five years
  • Funding for mental health services will grow as a share of the overall NHS budget over the next five years
  • £420m to be made available to tackle potholes, bridge repairs, and other minor works in this financial year
  • A £400m pledge to schools as an “in-year bonus
  • An extra £160m for counter-terrorism police in 2019–20
  • An extra £1bn for the Ministry of Defence across 2018–19 and 2019–20
  • NS&I will allow people other than parents and grandparents to gift Premium Bonds to a child (the minimum investment has been reduced to £25)
  • Through the British Business Bank, the government will support pension funds to invest in growing UK businesses
  • A new tax on plastic packaging containing less than 30% recycled plastic from April 2022
  • VAT threshold will be maintained at the current level of £85,000 for a further two years until 31 March 2022
  • Air Passenger Duty – long-haul rates will increase in line with RPI
  • HMRC will be a preferred creditor in business insolvencies
  • New 26–30 railcard offering one third discount on certain fares to around 4.4 million people by the end of 2018


It's time to make your cash work harder for you - With the 2018-19 tax year fast running out, now is th perfect time to ensure you have taken advantage of all the tax-efficient allowances available to you. Two tax planning opportunities worth considering are: Your ISA and Junior ISA allowances. The ISA allowance is a generous £20,000 for the 2018-19 tax year. The JISA allowance is £24,000 for the 2018-19 tax year. You cannot carry over your ISA or JISA allowance once the tax year has ended - use it or lose it! Don't risk missing out on these valuable allowances. Tax year-end deadline 5th April 2019. Other ISA options are available.

How Much Should I save for a House Deposit

One of the first steps in getting on the property ladder and easily one of the biggest hurdles is raising the deposit. The size of your deposit will determine how much your home loan will cost. Here’s our guide on how much you need to raise before you buy.

The minimum deposit – 5%

Typically the minimum amount you’ll need is 5% of the property value and the lender would then lend you the rest provided you meet their affordability criteria. However, you’d be limited to the number of lenders and mortgage deals available to you and it can be harder to get approved for, as there is a higher risk for the lender. You’ll need to prove that you can keep up with the monthly repayments so a good credit score is important. Lenders will also look closely at affordability, to see if your wage can cover mortgage repayments and still leave you with enough to live on.

10% deposit

Most people aim to save at least 10% deposit, as there are more mortgage deals available and from a wider range of banks and building societies. According to a 2015 Which? National property survey, first-time buyers in the UK save an average 17% deposit.*

25% deposit

A deposit of 25% will open you up to even better mortgage deals and rates and you’ll be more favourable/attractive to banks and lenders.

Essentially, it’s best to remember this rule of thumb;

The more you can put down towards your deposit, the more likely you are to get a
cheaper mortgage rate.

Here’s an example:
If you wish to purchase a home valued at £300,000, you will need to have saved £30,000 for the deposit to get a 90% mortgage. If, however, you managed to save more, say £60,000 (20%), you’d get an 80% mortgage covered by the lender. This is the Loan to Value (LTV) ratio and will mean your monthly mortgage repayments are much smaller.

There are of course other important factors that affect the interest rate you’ll be able to get, like your credit score.

What about no deposit?

Hundred percent mortgages are available as of this year, where you borrow the entire cost of the house. The number of products like these has been on the rise since the 2007 financial crash. These types of mortgages normally require a family member to act as a guarantor who will commit/be liable to making the payments if you are unable to.

There are risks involved with 100% mortgages, which should be taken into account before considering them.  The biggest risk is that you can fall into negative equity. This is when you have a mortgage debt bigger than what your property is worth, which can happen if the value of the house drops. Negative equity can make it harder for you to move house or remortgage.

The other risk is that the interest rate can be higher, making it harder for you to repay. Since there is no deposit being paid, a 100% mortgage poses a greater level of risk to lenders as well, so they tend to increase the interest rate for the borrowing.

The best advice when saving for a mortgage is to start saving early and remember the rule of thumb

 

The more you can put down towards your deposit, the more likely you are to get a cheaper mortgage rate.

Borrowers must get advice before product transfers – Open Letter

This article is taken from Mortgage Solutions and features an open letter from Malcolm Davidson, director of broker UK Moneyman to the Financial Conduct Authority (FCA) on non-advised mortgage product transfers.

Should Lender Product Transfer be flagged with the warning Buyer beware”?

He wrote:

Dear Sir/Madam,

No one can doubt the success of the Mortgage Market Review (MMR) of 2014 for which the regulator should be congratulated, but I feel the market is beginning once again to potentially fail a section of borrowers.

If I may take a direct quote from Section 5.2 of the July 2010 pre-MMR Responsible Lending Consultation paper:

‘We have a mortgage market where many consumers have regularly remortgaged, shopping around far more than seen in the investment market, for example. For many of these consumers, the market has worked well.

But the level of mis-buying also highlights that some consumers are failing to properly engage and that we cannot rely on all consumers to be able to protect their own best interests.’

When this was written back in 2010, I do not feel there could have been any reasonable way anyone, including the FCA, could have known just how big the post MMR non-advised mortgage product transfer market would become.

Choice for consumers is a good thing and I have no problem whatsoever with a client hooking into a new deal with their current lender, as long as they are aware that there may be other more suitable deals available elsewhere.

Take my clients Darren and Dawn from Manchester.

Their lender waived their early repayment charges before the end of the fixed rate I arranged for them and they hooked into a new deal online without taking further advice.

Dawn was pregnant at the time and when they approached the lender for a home improvement further advance a few months later, they were declined on affordability.

The client re-engaged with me at this point and whilst I was able to help them obtain the additional funds they needed to create an extra bedroom, a £3,000 early repayment charge was triggered.

Had Darren and Dawn spoken to an adviser instead of taking the easy ‘click here for a cheaper deal’ option, I’m sure their future plans for extra funds would have been discussed and the early repayment charge avoided.

The problem we have here is that most clients need advice, even when it comes to a straightforward remortgage or product transfer but they don’t always realise it.

Lenders have invested heavily in technology and now encourage the clients to take a new deal online.

I understand the size of the direct-to-lender product transfer market is in the tens of billions, and no doubt a large chunk of that is consumers not taking advice, therefore potentially leaving themselves open to mis-buying.

To minimise the risk of poor consumer outcomes, my suggestion would be that all customers should be required to take advice from their lender or a broker before effecting any mortgage, including ‘simple’ product transfers.

Star Letter 19/10/18 posted by: Mortgage Solutions

MME Residential Property Review – September 2018

Our monthly residential market review is intended to provide background to recent developments in property markets, as well as to give an indication of how some key issues could impact in the future.

 

HOUSE PRICES HEADLINE STATISTICS

HOUSE PRICE INDEX (JUL 2018)* 121.4*
           AVERAGE HOUSE PRICE £231,422
MONTHLY CHANGE 1.2%
ANNUAL CHANGE 3.1%

*(Jan 2015= 100)

  • UK house prices rose by 3.1% in the year to July 2018
  • House prices grew fastest in the North West region, increasing by 5.6%
  • House prices in London fell by 0.7% in the year to July 2018

HOUSE PRICES PRICE CHANGE BY REGION

Region   Monthly Change (%) Annual Change (%) Average Price (£)
England   1.2 3.0 £248,611
Northern Ireland
(Quarter 2 – 2018)
  -1.0 4.4 £132,795
Scotland   1.4 3.2 £152,245
Wales   -0.2 4.2 £157,368
East Midlands   -0.2 3.0 £188,716
East of England   1.3 2.4 £294,603
London   0.6 -0.7 £484,926
North East   2.6 2.8 £131,505
North West   3.4 5.6 £165,529
South East   0.4 1.8 £327,002
South West   2.4 4.4 £259,971
West Midlands Region   0.6 4.4 £195,447
Yorkshire & The Humber   0.4 3.3 £161,712
Source: The Land Registry
Release date: 19/09/2018 Next date release: 17/10/2018

 

AVERAGE MONTHLY PRICE BY PROPERTY TYPE – JULY 2018

PROPERTY TYPE ANNUAL INCREASE
DETACHED
£352,138
(4.6%)
SEMI-DETACHED 
£216,785
(3.3%)
TERRACED
£187,242
(3.4%)
FLAT / MAISONETTE
£207,639
(0.6%)

Source: The Land Registry
Release date: 19/09/2018

Contains HM Land Registry data © Crown copyright and database right 2017. This data is licensed under the Open Government Licence v3.0.

 

MORTGAGE ACTIVITY

  • July saw steady growth in gross mortgage lending, driven largely by remortgaging as homeowners locked into attractive deals in anticipation of the recent base rate rise.”Peter Tyler, 
    Director at UK Finance

Source: UK Finance
Release date: 24/08/2018