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Rating shock could scupper guarantees

The Budget contained few surprises and little help for the beleaguered housing and mortgage markets.

The four-month extension to the stamp duty moratorium is an extension of a scheme which has not worked. It would have been better to have increased the limit to £500,000 for a shor- ter period.

Since the evidence is that the mortgage rescue scheme and HomeBuy Direct have had little take-up, further funding for these is pointless. However, there are two areas where other factors in the Budget could cause further collateral damage to the sector.

The initial City response was muted but, with the levels of Government borrowing forecast, there is a real risk that UK sovereign debt may lose its AAA rating.

At a stroke, the planned guarantee scheme for the mortgage-backed securities would be nullified.

The guarantee was the one great hope for introducing further liquidity into the mortgage market beyond the “nationalised ” lenders, albeit for mainstream lending only.

Higher-earners are being penalised in several ways with an increased higher rate of 50 per cent, the withdrawal of personal allowances and restriction of pension relief.

Although the impact is deferred, I would expect most lenders to look hard at restricting their criteria for this sector now in the knowledge that affordability is going to become more stressed at exactly the time rates are expected to rise quickly. Anyone with clients in this sector should be looking to arrange any refinancing now rather than leave it for any time.

Remember, many clients will be looking for ways to fund increased pension contributions before their relief is curtailed.

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