Bank Rates Rise, Mortgage Rates Follow
As indicated in our previous economic #aGENda, policymakers at the Bank of England have now increased interest rates to 0.5% from 0.25%, the second rate rise in three months. Two consecutive rate rises have not occurred since June 2004.
It however could have been more as some members of the Monetary Policy Committee (4 against the majority of 5) voted to increase them to 0.75%.
As sure as night follows day, the first off the blocks once rates increase is not those of savings accounts but those of mortgage products.
Nationwide and Santander have become the first major lenders to confirm a hike in mortgage rates following the interest rate increase by the Bank of England.
Nationwide will increase its mortgage rates from March for customers on its "base mortgage rate" and "standard mortgage rate" deals - these will rise to from 2.25% to 2.5% and from 3.74% to 3.99% respectively. Customers with tracker mortgages will also be hit with the full 0.25% increase, the lender has confirmed.
Santander has also announced that its standard variable rate will rise by 0.25% from March. They’ll go up to 4.49% from 4.74% and tracker rates will increase by the same 0.25% amount.
Halifax said it would write to customers with mortgages affected by the BoE rate change to let them know their new monthly payment. The lender hasn't revealed specific amounts.
If you're on a tracker mortgage, your rates go up as these move in line with the BoE base rate and if you are out of your penalty period, it may be worth looking at long term fixed rates if the BoE continue along their current course.
National Insurance rises 10.4%!
Boris Johnson and chancellor Rishi Sunak said that the National Insurance rise “must go ahead” and insisted it was the “right plan”, despite calls for it to be scrapped as households face increased food and energy bills.
In an article in the Sunday Times, they said the increase would help clear the NHS backlog.
National insurance will rise by 1.25 percentage points from April 2022 for a year, to pay for the NHS and social care is the headline the Government have tried to push out.
The reality is the increase is over 10% as the 1.25% goes straight on top of the 12% employees are currently paying, taking it to 13.25%, while employer rates go from 13.8% to 15.05%.
What does all this mean in practice?
An employee earning £20,000 a year will pay an extra £89 and someone on £50,000 will pay an additional £464.
From April those earning under £9,880 a year will not have to pay NICs and will not have to pay the new levy.
Critics argue the rise will have a greater impact on the lower paid, while business leaders warn firms could offset the rise by hiking up prices. This is certainly true when you consider national insurance is not levied against rental income, dividends, or anyone over state pension age.
House prices hit record high but slowdown looms
The average price of a home rose by 9.7% compared with a year earlier, gaining £24,500 to £276,759. However, monthly growth rose by 0.3%, down from 1.1% in December and the smallest monthly rate of increase since June 2021.
Commentators expect the housing market to cool “considerably” this year as Britons are confronted by a cost-of-living squeeze.
The Bank of England raised interest rates to 0.5% to curb inflation that it expects to rise above 7% in April. It forecast that rising energy costs and goods prices would lead to a 2% drop in people’s net income after inflation this year — the biggest hit to real incomes since comparable records began in 1990.
About 22 million households will have to pay 54% more for their electricity and gas supplies from April 1, when the energy price cap rises to around £2,000. The Bank also predicted that growth in Britain’s GDP would slow.
However, while commentators believe house price growth will cool this year, they did not expect prices to fall significantly. Unplanned savings built up during the pandemic will go some way to offsetting the income squeeze. And with around 80% of UK mortgage debt at fixed rates, most mortgage-holders are well insulated from short-term increases.
Furthermore, more stringent affordability criteria and mortgage regulation introduced during the 2010s means that recent buyers should be better placed to cope with higher mortgage rates than in the past.
Beyond house prices, there’s also other trends that may shape the housing market in 2022.
For example, it’s clear that issues around affordability will continue to feature. Indeed, throughout the pandemic a combination of rising inflation and historically low interest rates meant that many first-time buyers were forced to save for higher house deposits than they may have bargained for.
The good news looking into 2022, though, is that 95% mortgages are once again available to first time buyers. And despite higher inflation and an increase in interest rates, average rates on those mortgages hit a record low in 2021 and continues to remain at low levels in January 20214.
Rising house prices are a challenge for significant parts of the UK, though, with two thirds (67%) of the public believing that the UK housing market isn’t helping people get access to affordable and quality homes in their area.
Additionally, both homeowners (60%) and renters (72%) agree that house prices are the biggest issue facing the market right now and are sceptical that the housing industry will be able to provide reasonably priced, quality homes post-pandemic.
Stamp duty receipts hit new high
The stamp duty holiday has led to a significant fall in the number of people paying this tax over the last quarter, according to the latest HMRC figures.
HMRC figures shows the number of property transactions subject to stamp duty land tax (SDLT) were 10% lower in Q4 2021, when compared to the previous three months (Q3 2021). These transactions were also 13% lower than Q4 2020.
This SDLT holiday was phased out between 30 June and 30 September last year. HMRC says this caused a substantial rise in the number of transactions being completed earlier in the year, with home buyers keen to avoid paying additional stamp tax charges.
Since this tax break started to be phased out, HMRC says there has been a fall in transaction over the last two quarters. Residential property transaction in Q4 2021 were 12% lower than Q3 in 2021 and 15% lower than in Q4 2020.
Over the same period non-residential property transactions were 10% higher than both Q3 2021 and Q4 2020.
コメント