So what’s new?
Unlike last year, there weren’t any major announcements or changes to property policies or taxes, but there were some big ones relating to people’s personal finances:
National Insurance threshold
Although the planned National Insurance tax increase (of 1.25 percentage points) will still go ahead, the threshold after which employees start making those National Insurance contributions has been raised to £12,570 to help combat the cost of living crisis. This move will lift tens of thousands of lower earners out of paying National Insurance altogether.
Income Tax threshold
The income tax threshold has also been raised to £12,570. This will reduce the stress on the income of 30 million people in the UK, and - together with the NI threshold increase - has been described by the Chancellor as “the largest single personal tax cut in a decade.”
Sustainable home improvements
People who want to make their homes more energy efficient will pay 0% VAT on energy-saving materials, including the installation of heat pumps, solar panels, and insulation. They estimate that a family of four who have solar panels installed on their house could make £1,000 tax saving, plus £300 per year energy bill savings.
In another attempt to reduce the impact of the cost of living crisis, the Chancellor plans to reduce the levy on petrol by 5p per litre for the next 12 months. Fuel has recently been described by MPs as “prohibitively expensive.”
The financial landscape
Between rising food and petrol costs, energy price hikes, inflation, and the National Insurance increase, it’s estimated that the average cost of living will increase by £3,000 per household this year. Even Martin Lewis says he’s running out of ideas to help people cope with this extra pressure on their finances - and the Chancellor’s Spring Statement reflects this need for extra support.
What has all this got to do with mortgages?
While the Spring Budget didn’t include any specific housing policies this year, when you’re trying to buy a house or remortgage, anything that affects your personal finances is relevant.
It’s all to do with affordability. Your personal finances dictate how much you can save for a house deposit, and your income dictates how much you can borrow from a lender - usually as a multiple such as 4-5x your salary. But, on top of this, when you apply for a mortgage, a lender has to work out your “affordability”. This is simply a calculation that tells them whether they think you can afford the monthly mortgage repayments, both now and in the future.
Lenders do this by looking at your credit score, your age (to see how close you are to retirement), a review of the type of property and mortgage you want, and - most importantly - by digging into your spending habits. They’ll look at your bank statements from the last three or more months, to give them an idea of what type of purchases you’re making, and see if that roughly matches their expectations and The Office for National Statistics’ (ONS) averages.
They also look at how much of your income is spent on covering your expenses. For example, if your expenses (not including mortgage repayments) take up more than 50% of your income, you could be considered as an 'amber' risk by a lender. If rising living costs cause your monthly food, energy, and household bills to rise by a few hundred pounds and take up over 60% of your income or more, the lender could deem you a ‘red’ risk. This means they think that you could be in danger of overstretching yourself entirely, and they might not let you borrow any money.
What can I do?
The good news is that Rishi’s policies could help reduce some key expenses, and the increase in the National Insurance and income tax threshold means you get to keep more of your salary (if you earn under £35,000). The tax cut on fuel starts from 6pm tonight, so the benefits will be immediate, while the increase in tax thresholds will begin in July.
There are also ways in which you can lower your mortgage’s monthly repayments. For example, by taking a longer-term mortgage (eg a 40-year term), or by boosting your deposit before you apply in order to unlock cheaper rates.
As always, before applying for a new mortgage we recommend that you don’t make any big one-off purchases - like a new car or a big holiday. It’s also worth taking the time to get your credit score into the best possible shape to show lenders that you are credit-worthy and responsible.
If you’re already a homeowner, remortgaging away from a higher interest rate - such as if you’re on your lender’s Standard Variable Rate - can also see your monthly repayments come down. Make sure you speak to your broker about your options.
There are lots of budgeting websites with tips and advice on how to help reduce your spending on discretionary products and services, like eating out and gym memberships. However, there’s only so much you can do to money-manage your way through this cost of living crisis. Martin Lewis, the Money Saving Expert, has warned that many people who are already keen budgeters will still struggle to further lower their costs for food, energy, petrol, and other non-discretionary spending.
If you’re worried about your financial situation
If you’re struggling with debt, or anxiety about rising living costs is taking a toll on your mental health, there are services out there including the Government’s Money Advice Service or Money and Mental Health that could offer support.
If you’re worried about affording your mortgage repayments, please don’t suffer in silence - speak to your broker and your lender about your situation to see what they can do to help.
Martijn van der Heijden
As Chief Financial Officer Martijn leads Finance, Analytics and Lending.