Will the Chancellor’s latest statement have an impact on my finances?

Chancellor Rachel Reeves has confirmed that the Autumn Statement will take place on October 30th. 

Addressing the House of Commons late last month Reeves claimed the previous Conservative government had overspent by a whopping £22 billion and laid the groundwork for both tax rises and spending cuts. 

She told the Commons: “I have to tell the House that the budget will involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax.

“This is not the statement I wanted to give today, and these are not the decisions I wanted to make. But they are the right decisions in difficult circumstances.” 

So what does that all mean for your finances?

The Chancellor’s statement created a raft of headlines but the most telling figure was the net pressure of approximately £16.5 billion. This figure comes from a gross amount of £22 billion in ‘unfunded’ commitments, offset by £5.5 billion in identified savings.

To manage this fiscal pressure, Reeves announced several cutbacks and postponements. She cancelled or delayed road and hospital construction projects, restricted winter fuel payments to only the poorest pensioners, and signalled that her first budget on October 30 would include ‘difficult decisions’ regarding tax policies.

Reeves' statement marks her strongest indication yet that taxes will increase beyond what was outlined in Labour’s manifesto. Potential changes under consideration include raising capital gains tax and altering pension tax relief.

Reeves also decided against proceeding with the Tory plan for a ‘Tell Sid’-style share sale of the government’s 20% stake in NatWest. While she still intends to divest these shares, she argued that a retail sale would be a ‘bad use of taxpayer money’ and potentially costing hundreds of millions of pounds due to the discounts that would be necessary.

So what does this mean for the UK mortgage market?

At a glance not much but… the measures announced by Reeves, along with the broader economic context could have several wider implications that would create a knock-on effect.

Indeed, while the measures announced are aimed at stabilizing the economy, they may well introduce a level of uncertainty that could influence the housing market in multiple ways.

Interest rates and borrowing costs

One of the immediate impacts could be on interest rates. The need for increased government spending and potential tax hikes may lead to inflationary pressures. If the Bank of England responds by raising interest rates to combat inflation, borrowing costs for mortgages will rise. Higher interest rates increase monthly mortgage repayments for those on interest rate trackers and Standard Variable Rates and similar types of deals making homeownership more expensive and potentially slowing down the housing market.

Housing demand

The combination of higher taxes and restricted public spending could also lead to reduced disposable income for many households. If consumers have less money to spend, the demand for new mortgages might decrease. This would particularly impact first-time buyers, who are often more sensitive to changes in economic conditions and borrowing costs.

Mortgage approvals

Lenders may become more cautious in their mortgage approval processes. With the government signalling fiscal instability, banks might tighten their lending criteria, making it more difficult for potential homeowners to qualify for mortgages. This caution could stem from fears of an economic downturn or increased default rates among borrowers.

Property prices

The impact on property prices could also be twofold. On one hand, higher borrowing costs and reduced demand could put downward pressure on house prices. On the other hand, if the supply of new homes decreases due to postponed construction projects, this could counteract the reduction in demand and support prices to some extent. The overall direction of property prices will depend on the balance between these forces.

Buy-to-let market

For the buy-to-let market, the increase in capital gains tax could be particularly significant. Landlords facing higher taxes on their profits might reconsider further investments in property. This could reduce the supply of rental properties, potentially driving up rents. However, the impact would vary across different regions and property types.

Consumer confidence

Consumer confidence come into play. If people feel less confident about their financial future, they may be less likely to make large financial commitments, such as taking out a mortgage and could dampen activity in the housing market.

Increased government spending, tax changes and potential interest rate hikes create a complex environment for borrowers and lenders alike.

For homeowners and potential buyers, the key will be to navigate these changes carefully.

Those considering new mortgages should be aware of potential increases in borrowing costs and possibly stricter lending criteria. Existing homeowners with variable-rate mortgages should prepare for potential increases in their monthly payments.

The key message remains the same though. Anyone thinking of buying a property should do what’s best for themselves.
As we’ve said before, buying a property offers stability and long-term security and can provide a sense of ownership and the ability to customise and settle down in one place.

Whereas on the other hand renting offers flexibility, making it ideal for those who prefer to remain mobile or uncertain about their long-term plans, allowing for easier relocation and less commitment compared to buying.

If you are unsure which is best for you remember to seek advice.