The new Chancellor has axed the majority of tax cuts from the mini-Budget in a bid to calm rattled markets.
Jeremy Hunt announced that the basic rate of income tax would no longer be cut from 20% to 19%, and the energy price guarantee would be reviewed in April 2023, rather than October 2024, as previously planned.
Plans for a one-year freeze of alcohol duty, duty-free shopping for tourists and cuts to the dividend tax rate have also all been scrapped.
These changes join the already abandoned plans to abolish the 45p tax rate and keep corporation tax at 19%.
But in good news for those looking to buy a property, the increase in the stamp duty threshold in England and Northern Ireland from £125,000 to £250,000 will remain in place.
The reduction to National Insurance contributions, which removes the previous 1.25% increase, will also go ahead.
How have markets reacted?
The reaction from financial markets to Hunt’s changes has been positive.
Following his statement, the pound strengthened against the US dollar and gilt yields fell to their lowest level for 10 days.
The fall in gilt yields is important, as these affect swap rates – the interest rates lenders pay when they borrow money for fixed rate mortgages.
It was the sudden rise in gilt yields, and by extension swap rates, following the mini-Budget that caused many lenders to reprice their mortgages.
With gilt yields falling again, the cost of fixed rate mortgages should stabilise and may even fall.
What does it mean for consumers?
While it is good news that markets appear to have stabilised and confidence in the government’s management of the economy is being restored, the changes are unfortunately mainly bad news for consumers.
Scrapping plans to cut the basic rate of income tax will collectively cost Britons £5.9 billion a year.
The review of the energy price guarantee in April next year, rather than October 2024, also means households could face steep hikes in their energy bills, unless the initiative is extended.
Some estimates suggest the end of the scheme could lead to the average annual cost of gas and electricity jumping from £2,500 to more than £4,000.
But there is good news for those looking to purchase a home, as they will still not have to pay stamp duty on the first £250,000 of their purchase.
What impact will it have on the mortgage market?
The reversal of the previously planned tax cuts is also mixed news for the mortgage market.
On the one hand, the renewed stability and fall in gilt yields should make lenders feel more confident about pricing their ranges.
As a result, those who withdrew products may relaunch them, while mortgage rates should stop rising and may even come down.
But the fact that the energy price guarantee is likely to end in April means inflation is likely to stay higher for longer.
This in turn would mean that interest rates are also likely to have to be higher for longer, which will feed through into higher mortgage rates.
How will the housing market be affected?
The combination of higher tax rates, rising utility bills and increased mortgage rates are likely to lead to a further slowdown in activity in the housing market.
Many would-be buyers have already put plans on hold in the face of rising borrowing costs and economic uncertainty.
The reduction in stamp duty is unlikely to be enough to offset this drop, particularly as the change is permanent, meaning there is no rush for buyers to take advantage of it.
As a result, some form of house price correction is still likely in 2023, but it is too early to say how much prices may fall by.
It is worth noting that households have significantly less debt than they did in the run up to the last housing market correction, while lenders are required by regulators to help people who get into financial difficulties and only repossess a property as a last resort.
These factors, combined with the ongoing shortage of homes for sale, should provide some support to prices.