Taxation Rise

The chancellor, Rishi Sunak, has introduced some of the biggest tax rises in a generation — worth about £85 billion — to help fund the black hole in Britain’s social care.

Homeowners are facing a mortgage crunch as banks rein in the size of loans ahead of tax increases and interest rate rises.

This means that families are likely to have less money to meet their loan repayments and will probably find that the generous terms of their existing deals are long gone when they come to remortage.

The cost of the tax hikes to a couple earning salaries of £80,000 and £30,000 and making £5,000 a year in dividends each, will be just over £1,000 a year by 2025, according to the accountancy firm Blick Rothenberg.

But what about the low earners?

The spare cash crunch suffered by those who have less cash than they thought to pay their mortgage will not be as bad for those who borrow now, because banks and building societies will have taken into account the chancellor’s measures when deciding how much to lend. The Bank has a commitment to keep inflation at about 2 per cent but the rate hit 3.1 per cent in September and is forecast to be 5 per cent next year. Many analysts had forecast an increase from its record low of 0.1 per cent this month amid rising inflation. Coupled with rising inflation and the shadow of interest rate rises, there are a difficult five years ahead.”

The chancellor’s changes came after many people rushed to buy a first or a bigger home or take out more money for improvements, taking advantage of record low interest rates and a holiday from stamp duty that was designed to stimulate the property market.

Someone with a £150,000 repayment mortgage over 20 years, paying the typical SVR of 3.59 per cent, would pay £140 more a year if the base rate rose 0.15 percentage points.

Mortgage lending surged to a record £40 billion in June compared with £15 billion in June 2020, just before the stamp duty holiday.

A further 1.1 million people whose deals are on a standard variable rate (SVR) — the default product borrowers are moved to at the end of a deal — could also be affected.

Customers on fixed rate deals will be sheltered from any rise. About 96 per cent of home loans made in 2019 were for fixed products. But fixed rates have been rising in anticipation of a base rate increase, and rates below 1 per cent have been disappearing fast.

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