Mini-Budget & housing market blog

Following his anything-but mini-Budget, householders are still coming to terms with the whirlwind of announcements by Chancellor Kwasi Kwarteng and what effect they will have on the UK housing market. 

Since his announcement – which caused the Bank of England to intervene after financial markets were spooked and the value of the pound plummeted – more than 40 per cent of mortgage products have been removed from the market by banks and building societies, with more than 20 providers pulling their entire range of fixed rate products. 

Couple this with the ongoing rise in interest rates – currently at 2.25 per cent and with some economists forecasting an increase to six per cent for summer 2023 – to curb soaring inflation and the overall cost of living crisis, we can expect to see a softening in the UK housing market in the immediate future. 

How it fares in the longer term depends on the cost and availability of mortgages and how far lenders and policymakers go to address the negative impact of rising interest rates.  

Despite the cut in stamp duty in the mini-Budget, many new buyers are likely to hold fire on life’s biggest purchase because the amount of debt they can take on or secure from a lender will be reduced. 

And existing homeowners also face increased financial pressures – with those on a variable rate mortgage having to cover monthly rises and those reaching the end of a fixed-rate deal needing to budget accordingly.   

The good news is that although banks and building societies will pass on rate rises to their customers, they’ll be working hard to avoid any marked rise in repossessions by offering packages to reduce financial pressures. Equally, the Government will consider additional measures to continue supporting homeownership. 

Ultimately, we’re going to witness downward pressure on house prices and fewer home sales during the remainder of 2022 and into 2023, with the longer-term prospects of the market depending on how long the Bank of England takes to bring inflation back to a level near its target of two per cent and for interest rates to start being reduced.