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The Mini-Budget and the Housing Market in Scotland Posted: 27th September 2022
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Since the mini-budget was announced last week, the value of the pound fell to a record low against the US dollar as markets reacted to the implications of tax cuts and high levels of borrowing. Market uncertainty over the funding costs for these spending charges, worth an estimated £45 million, has had a profound affect over the last week.

The Chancellor believes that putting more money in people’s pockets and reducing the amount of tax businesses will pay will help to drive economic growth. He has set a target for GDP to reach 2.5% a year in the medium term.

However, investors are concerned that these spending plans will cause higher inflation and interest rates, which will reduce economic growth.

The value of the pound fluctuates, but the recent drop is unprecedented. At one point, the pound lost nearly 5% of its value against the US dollar. Everything traded globally is priced in US dollars, so this drop means that all UK imports are more expensive, increasing inflation further.

The Bank of England has this week announced that it would not hesitate to act in a bid to control inflation. It has increased interest rates from 0.1% in December to 2.25% today, but investors are concerned that they will rise even higher than previously thought to tackle inflation. Before the mini-budget, economists predicted that rates would peak between 3% and 4% next year, but they are now expected to reach 6% by next May.

However, this is just a prediction, and if the government can regain confidence in the markets, the pound could strengthen again, and interest rates may not have to rise so steeply.

Mortgages

Mortgage rates reached record lows in the early part of this year, but with rising inflation, interest rates have gone up, making it more expensive for those looking for a new mortgage deal. This includes first-time buyers, movers and those looking to remortgage on their existing property.

If you are on a fixed-rate mortgage, you won’t need to take any action as the rate will stay the same until the end of your mortgage term, usually two to five years. If you are on a variable rate or a tracker mortgage, you should try to remortgage as soon as possible so that you are on a fixed rate.

If you have a up to six months left on your current deal, you may find that you can secure a new mortgage deal now, so it’s important to talk to a mortgage advisor.

House prices

The rise in mortgage rates means that the housing market may slow down, and we could see more of a buyer’s market. However, 25% of property sales involve no mortgage, and a large proportion of other sales have small loans, which will further reduce the impact on borrowers. The most significant impact will be felt by those looking to buy their first home or those wanting to move up the property ladder.

The stamp duty cut and LBTT

The Chancellor announced in the mini-budget that the threshold at which stamp duty is paid had been doubled to £250,000 to kick-start activity. But what does this mean for Scotland? Here, we have the equivalent Land and Buildings Transaction Tax (LBTT), and the stamp duty announcement only applies to homes purchased in England and Wales.

In this instance, Holyrood will be given an increase in block grants from the Treasury spread over this year and the next two financial years worth £630m. Any tax cut that doesn’t apply to us here in Scotland is treated by the Treasury as a giveaway to non-Scottish individuals, and a share of that giveaway is handed to Holyrood. What can Holyrood ministers do with that money? They can cut LBTT in similar ways or they can use that money to spend on different priorities. Time will tell.


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