" The OBR certainly believes targeted inflation will return within a year, and what tends to be the measure that brings it down to target – rate rises. "
With a notable addition – continued digs at the Labour Party and, in particular, the Shadow Chancellor, John McDonnell. Now, whatever your political persuasion, when the Chancellor stands at the Dispatch Box – even if this is a Spring Statement rather than a Budget – you tend to want to hear plenty of detail rather than party political point-scoring and sloganeering, however that’s not really what happened.
Indeed it was heavily trailed that the Statement would only take 15 minutes to deliver, however it took nearly double that given all the times Hammond felt the need to disparage the Opposition. Politically, you can understand why the Government felt the need to do this – a primetime opportunity to distinguish yourself from the Opposition on the one issue which you appear to have a polling lead, the economy. However, it did tend to seem like a waste of time and one couldn’t help but pine for a proper Budget announcement – although we’ll have to wait until November for that.
So, what of the housing and mortgage market ‘detail’ within the Spring Statement? Well, unsurprisingly, there was a relatively large amount of further detail particularly when it came to the housing market, extra funding, and details on just how the Government intends to hit its self-assigned target of 300,000 new affordable homes each year by the middle of the next decade. Hammond said that it was currently working with 44 local authority areas to share out the £4.1 billion Housing Infrastructure Fund, while the funding for its Partnership for smaller housebuilders is to be doubled to £220m, and London will get a not insubstantial £1.67 billion for an extra 27,000 more affordable homes - to be built by the end of 2021-22.
All positive stuff and again presses home the Government’s commitment to getting the number of new homes up. It was also of interest to get an update on the big news from last year’s Budget, namely the decision to cut stamp duty entirely for first-time buyers purchasing below £300k. According to Hammond this has resulted in ‘an estimated 60,000 first-time buyers’ benefitting, although we should also point out that this includes those who purchased property between £300k-£500k as they would have seen a stamp duty cut as well.
It also seems a rather moot point to make around whether the measure has delivered any impetus to the first-time buyer market. It’s noticeable that the Government didn’t say it was responsible for an extra 60,000 first-timers getting on the ladder because that would be patently untrue. Instead, what’s happened is those who were going to buy anyway have benefited to the tune of a few thousand pounds stamp duty saving? We can’t really evidence that the Government’s aim of incentivising first-timers onto the market has resulted in extra numbers – indeed, if you remember, the Office of Budget Responsibility suggested at last year’s Budget announcement that the biggest ‘winners’ from such a measure would be existing homeowners who would see the value of their homes boosted by this.
Finally, and of particular interest to the mortgage market, was what seemed a rather innocuous point that Hammond made around inflation. He said that the OBR were forecasting inflation, currently around the 3% mark, would be back at the target of 2% over the next 12 months. To our mind, this means it’s likely the MPC will be raising rates again soon and perhaps multiple times over that period, in order to get inflation down. This might not transpire but the OBR certainly believes targeted inflation will return within a year, and what tends to be the measure that brings it down to target – rate rises. So, we as advisers should perhaps be prepared for further increases in Bank Base Rate during the next year – and be preparing our clients for exactly this scenario to play itself out. With rates on the rise, now would be a good time to remortgage
All in all, the Spring Statement was hardly anything to write home about but it did contain some positive housebuilding news and the somewhat concealed warning of further interest rate rises to come, based on the Bank of England returning to its overall aim of getting inflation down to target. We have therefore been warned.
