With the Chancellor’s Spending Review coming up this week, all eyes are on how the government will balance fiscal discipline with investment to support economic growth.
Many of us will be interested to see how these decisions could impact the mortgage market. My predictions on what may be announced explore what this could mean for lenders, brokers and mortgage holders.
Tight public finances could lead to real-term cuts, but new spending rules could unlock growth
The government is under growing pressure to rein in public spending amid persistent inflationary pressures and rising interest payments on public debt.
While we expect the Spending Review to outline real-term cuts across most departments, a shift in the government’s fiscal rules at last year’s Budget opens the door to greater investment in growth-boosting infrastructure projects.
From a mortgage market perspective, this is a double-edged sword. On one hand, tighter spending could dampen consumer confidence and put downward pressure on house price growth. But on the other, smart investment – particularly in housing, infrastructure, and energy – could stimulate local economies, support employment, and indirectly bolster demand for mortgages over the longer term.
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Housing supply will be in the spotlight, with plans for more affordable homes
A major priority is expected to be housing supply. With the UK facing an acute shortage of homes, particularly those that are affordable for first-time buyers, the Chancellor is expected to set aside funds for the Affordable Homes Programme.
With the current programme coming to an end next year, we welcome news on its successor, which is expected to increase the delivery of social rent. We called to protect and expand shared ownership in the next Affordable Homes Programme and expect to hear more about this on Wednesday.
This plan could determine the future delivery of housing for a 5-10-year period, with many calling for a 10-year programme to provide long-term certainty and planning. It will be supported by long-term strategies around housing and infrastructure, which we look forward to in the coming weeks.
Greater investment in affordable homes can catalyse the wider housebuilding market. This could gradually ease the supply and demand imbalance that has been driving house prices upwards and put homeownership within reach of more people.
While more housing supply won’t provide an overnight solution to affordability challenges, it can help stabilise prices and broaden the range of options available to buyers.
From a mortgage perspective, this is good news. More homes coming to market create more movement, which benefits not only first-time buyers but also homemovers and those looking to remortgage. It also fosters a more dynamic, competitive lending environment that can support innovation and flexibility in mortgage products.
Climate commitments could be scaled back
Tackling climate change and improving home energy efficiency were big-ticket promises at the last election. However, the reality of squeezed budgets means we’re likely to see less funding than previously pledged. While there may still be some money for retrofitting homes and supporting greener technologies, expectations should be tempered.
For mortgage holders and landlords, this has implications. With tighter public funding, the burden of improving energy efficiency could increasingly fall to individual homeowners, particularly those in older or less efficient properties. That’s why the role of green mortgages and support tools from lenders is becoming more critical.
At Leeds Building Society, we continue to explore ways to support members in improving the sustainability of their homes, whether that’s through tailored lending criteria, Energy Performance Certificate (EPC)-linked products, or working with partners to offer guidance on home improvements. But there’s no doubt that a clear, long-term government strategy with stable funding would help accelerate progress in this area.
No major tax changes… for now
Tax changes are typically reserved for the Budget, which will be held in the autumn, and this year should be no exception. We don’t expect significant alterations to income tax, National Insurance, or stamp duty in this announcement.
However, the absence of tax changes is still significant. It means the overall landscape for buying or selling a home remains stable in the short term, which can offer some reassurance to both prospective buyers and lenders. Predictability in the tax system can make planning for a home purchase or remortgage much easier.
We’ve long advocated for consistency in housing-related taxes. Short-term tinkering — like temporary stamp duty holidays — may create surges in demand, but they can also distort the market and make it harder for people to make measured, informed decisions. What borrowers value is stability and clarity, and the status quo on tax should provide just that.
Upcoming consultations on ISA rules
Lastly, there’s been plenty of chatter about potential changes to ISA rules, and while the Spending Review isn’t expected to contain any announcements on this front, consultations are due to begin in the coming weeks.
This is one to watch, especially for mutuals, like ourselves, who use ISA savings to fund our lending.
Saving for a deposit is one of the main barriers facing would-be homeowners, and reforms to the current ISA system could make things more complicated for those with short-term savings needs.
The Spending Review is shaping up to be a delicate balancing act between fiscal restraint and targeted investment, between long-term goals and immediate constraints. For the mortgage market, its effects will be felt indirectly but meaningfully.
