Brokers concerned about impact on affordability and borrower confidence
Chancellor Rachel Reeves is preparing to confront a widening £20 billion hole in the public finances after a sharp downgrade to the UK’s productivity outlook left her facing difficult fiscal choices in next month’s Budget.
The Office for Budget Responsibility (OBR) is expected to cut its productivity assumptions by about 0.3 percentage points, aligning with the Bank of England’s more pessimistic view of the country’s long-term economic potential. The revision, seemingly small, could have significant consequences for the Treasury. The Institute for Fiscal Studies calculates that every 0.1 percentage point fall in productivity growth adds around £7 billion to government borrowing by 2029–30.
READ MORE: Reeves targets the asset-rich as she drops tax hike clue
Reeves, speaking in Saudi Arabia earlier this week, conceded that the OBR was “likely to downgrade productivity”, describing the UK’s record since the financial crisis and Brexit as “very poor”. The Chancellor has confirmed that both tax rises and spending cuts remain under consideration, while maintaining her fiscal commitments not to borrow for day-to-day spending and to reduce debt as a share of national income by the end of the parliament. The Guardian reported that Reeves is furious that the OBR has chosen her second budget to downgrade the figure.
Mortgage professionals brace for impact
The looming prospect of significant tax increases or tighter public spending has unsettled many across the mortgage and housing sectors.
Craig Head, director at Mortgage Required, said such measures “would almost certainly weaken mortgage affordability, cool housing demand and sap borrower confidence over the next few months”. He warned that any squeeze on household incomes “would directly reduce the amount buyers can afford to borrow”, adding that a poor market reaction “could edge mortgage rates up again, further straining affordability.”
That concern is shared by Katherine Stagg, of Stagg Mortgages, who said the “prospect of tax rises or spending cuts in the November Budget will inevitably ripple through the mortgage and housing landscape”. With affordability already under pressure, she warned that “any fiscal tightening - especially if it impacts income tax thresholds or property levies - could dampen borrower confidence and cool housing demand in the short term.”
Targeted taxation urged
Yet some within the industry believe the Treasury has options to raise revenue without destabilising the property market. Matthew Arena, managing director of The Brilliant Group, said there were “plenty of opportunities to increase taxes without directly affecting mortgage affordability and housing demand”.
He argued that higher levies on “larger corporates” or “the highest earners” would have only “marginal” consequences, noting that “the impact of interest rates is much greater”. However, he cautioned that tax increases below the top income tier “would hit those on the margins the hardest - such as first-time buyers, those saving for a home or young families looking to upsize.”
READ MORE: Mansion tax reports leave London brokers reeling
Arena added that such measures would also “affect sentiment, making borrowers and investors more risk-averse and impacting the market further”. He warned that direct changes to stamp duty or income tax for middle earners “would have a material negative affect” and urged the Chancellor to ensure decisions are “sensible, balanced and enable us to retain interest rate stability.”
Balancing the fiscal equation
Although declining debt-interest costs could offer some respite, Reeves faces competing pressures: the fallout from welfare policy reversals, a desire to rebuild fiscal buffers, and rising expectations of significant tax hikes.
The Chancellor’s balancing act between fiscal discipline and economic stability will have far-reaching implications. For brokers and borrowers alike, the measures unveiled on 26 November will determine not only whether Reeves meets her fiscal rules, but how deeply the Budget reshapes mortgage affordability and confidence across the housing market in the months ahead.
