Even if markets respond well to the UK government’s decision to reverse plans to cut the top 45p income tax rate, R3 Mortgages director Riz Malik fears that “mortgage lenders may take some time to reflect positive news in their pricing”.
This morning’s decision follows prime minister Liz Truss’ comments yesterday (2 October) where she announced that the government would not change course.
While Malik suggests the decision is “welcome news” he notes that “the Office for Budget Responsibility’s response to the mini-Budget needs to happen as soon as possible to potentially undo some of the damage that was done last week”.
Posting on his Twitter, Chancellor Kwasi Kwarteng said the abolition of the 45p tax rate “has become a distraction”.
Kwarteng stated: “We get it, we have listened” and suggested that abolishing the 45p tax rate will allow the government to “focus on delivering the major part of our growth package”.
In the days following Kwarteng’s tax-cutting statement, a range of large and small lenders have pulled all or part of their residential and buy-to-let loans.
Moneyfacts revealed that on 27 September, a record 935 home loans were withdrawn from the market, more than double the previous highest fall of 462 products on 1 April 2020 at the start of the pandemic lockdowns.
Interactive Investor senior personal finance analyst Myron Jobson comments: “Whether the move will be a panacea to the market turmoil remains to be seen.”
Jobson says: “The hope is the volte-face will steady the ship. Homeowners and wannabe buyers will hope for a reprieve in the mortgage marketplace, which has seen a number of lenders shut up shop for new customers, with many more hiking rates on deals.”
Meanwhile, Shaw Financial Services founder Lewis Shaw believes the government “should never have even attempted this policy in the manner they did”.
Shaw comments: “Either they did know what would happen to financial markets but didn’t care until it became too politically toxic, or they didn’t know what would happen, proving they’re economically illiterate.”
“Either way, their reputation is in tatters, market confidence has packed its bags and got on a plane and mortgages are shot to bits. If I caused half as much carnage in any business in less than a week, I’d be given my marching orders, and rightly so.”
Also commenting was MT Finance director Tomer Aboody, who states: “The plan to abolish the 45p income tax rate for top earners will provide some comfort but such a U-turn could lead to a lack of confidence in the prime minister and chancellor, resulting in a more dramatic impact further down the line. In the short term at least, it will hopefully improve an extremely volatile situation.”
