What the Spring Budget means for mortgage borrowers

Last updated on 11 March 2024 by Claire Flynn

What the Budget means for mortgage rates

The Chancellor of Exchequer delivered the Spring Budget to the House of Commons yesterday. In it, he spoke very positively about the British economy, emphasising the reduction in inflation from 11% to the current level of 4%. He also stated that the Office for Budget responsibility predicts this will fall to below the 2% target in the next few months. 

This fall in inflation is likely to have many borrowers wondering whether mortgage rates could fall soon. The base rate increases since the end of 2021 have been done in an effort to curb inflation, but these have also had a significant impact on mortgage costs. The average two-year fixed mortgage rate (75% LTV) currently stands at 5.74%*, much higher than a few years ago. 

Given the apparent success in reducing inflation to a more manageable level, all eyes are likely to be on the Bank of England - their Monetary Policy Committee’s next decision on the base rate is on 21st March. 

It’s difficult to predict what the Bank of England will do and what the impact on the mortgage deals currently available will be. Despite the base rate remaining at 5.25% since August, there has been much mortgage rate volatility, with increases across many fixed rate deals in recent weeks. Four lenders increased rates on selected products in one day on 11 March.

While some borrowers may want to wait and see if rates reduce, with the average standard variable rate still well above 8%*, those who have come to the end of their current deal or are approaching it, stand to save some cash in the short term by remortgaging to another deal.

Property tax changes 

While some were hoping for more substantial Stamp Duty changes, Jeremy Hunt kept his property tax changes limited to the abolishment of the furnished holiday letting tax regime and multiple dwelling relief. 

He also announced a reduction in the higher rate of capital gains tax applied to property, from 28% to 24%. Capital gains tax typically only applies to buy-to-let properties, business premises, land and inherited property.

Were there any Lifetime ISA changes?

Surprisingly, no changes to Lifetime ISAs (LISAs) were announced. These ISAs were brought in to replace the Help to Buy ISA a number of years ago, offering a tax-free boost on savings for those using the funds to purchase their first home or for retirement. 

However, there is a £450,000 purchase price limit on properties that can be bought using the ISA bonus money. If someone buys a home above this price, they lose the bonus cash and face penalties on their savings. 

Given the fact house prices have risen since this limit was put in place, there have been several calls for LISAs to be reformed to avoid home buyers facing penalties for buying homes above this limit.

But no changes have been announced, meaning this £450,000 limit still holds. This may disappoint some first-time buyers, particularly those who live in areas with more expensive properties, such as London.

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*Mortgage rates provided by Mojo Mortgages and are a correct as of 11 March 2024