Increase in mortgage loans preceding imminent stamp duty adjustments
New and Improved:
Homebuyers hurried to snag mortgage deals ahead of a looming property tax hike, causing a massive £9.7 billion surge in borrowing in March, according to recent Bank of England data. This spike surpassed estimated predictions, as the rise compared to February hit an astounding £13 billion.
EY ITEM Club analyst Matt Swannell attributes the sudden increase to the tax changes announced by Chancellor Rachel Reeves last year. "People were racing to close deals before the deadline and reap the benefits of lower transaction costs," Swannell explained.
From now on, homeowners will pay taxes on properties valued over £125,000, a significant drop from the previous threshold of £250,000. First-time homebuyers will also need to pay stamp duty on homes worth more than £300,000.
Although mortgage approvals fell for the third consecutive month, further drops are expected due to the Tax Change mirroring trends seen in the past. As Swannell pointed out, "Similar stamp duty adjustments in the past have triggered substantial drops in approvals after the deadline, so the recent slowdown in mortgage activity may continue in the short term."
Economists expect the Bank of England to lower interest rates by 0.25 percent in response to the market conditions, following a gradual and cautious approach. Before the rate decision next week, MPC members will closely examine new mortgage data to gauge demand among UK households.
Pantheon Macroeconomics' Elliott Jordan-Doak believes that consumers have started showing signs of "modest caution" due to uncertainty arising from external factors like political unrest. "The potential impacts of Trump's tariffs could disrupt the path of falling savings, increasing borrowing, and robust housing demand displayed by consumers," Jordan-Doak suggested.
The Spring Statement did not specifically address mortgage approvals or net borrowing levels. The Chancellor focused on taxation and national insurance adjustments rather than housing market policies. For a comprehensive understanding of housing-related impacts, additional data (such as interest rates and lender policies) would be beneficial.
- Homebuyers, driven by the forthcoming property tax hike, rushed to secure mortgages, which ultimately led to a £9.7 billion increase in borrowing last March.
- The rise in borrowing was unexpectedly large compared to February, with a staggering £13 billion difference, according to the Bank of England data.
- The surge in borrowing can be linked to the tax changes announced last year by Chancellor Rachel Reeves, as homeowners rushed to close deals before the new threshold took effect.
- The new threshold for paying taxes on properties will be £125,000, a significant reduction from the previous £250,000, which also applies to first-time homebuyers for homes worth more than £300,000.
- The Bank of England is expected to lower interest rates by 0.25 percent in response to the current market conditions, created in part by the tax changes, before the upcoming rate decision next week.
